Adjusting Accounts For Financial Statements: Learning Objectives - Coverage by Question

Chapter 3
Adjusting Accounts for Financial

Statements
Learning Objectives coverage by question
MiniExercises
Exercises
Problems
21 - 23, 25,
33, 35,
40 - 42, 46,
29, 30
36, 38
47, 52, 54
23, - 25,
32 - 36,
29, 30
38
Cases and
Projects
LO1 Identify the major steps in the

accounting cycle.
LO2 Review the process of
journalizing and posting transactions.
LO3 Describe the adjusting process
and illustrate adjusting entries.
LO4 Prepare financial statements

from adjusted accounts.
55 - 58
40 - 43,
46 - 49,
55 - 58
52 - 54
40 - 42,
26
39
44, 47, 49,
55, 58
50, 53, 54
LO5 Describe the process of closing
temporary accounts.
LO6 Analyzing
changes in
balance sheet accounts.
27, 28, 30
25, 29
31, 33,
42, 44 - 46,
37, 39
49 - 54
32, 34 - 36,
38
53
55
56
Cambridge Business Publishers, 2014

Solutions Manual, Chapter 3
3-1
DISCUSSION QUESTIONS
Q3-1.
The five major steps in the accounting cycle are:

1. Analyze business activity using transaction analysis based on the related
source documents.
2. Record results of the transaction analysis chronologically in the general
journal and create a trial balance.
3. Adjust the recorded data to update all accounts for expense and revenue
recognition not previously recognized.
4. Report the adjusted financial data in the form of financial statements.
5. Close the books by posting the adjusting and closing entries, which zero out
the temporary accounts.
Q3-2.
The fiscal year is the annual accounting period adopted by a firm. A firm using a
fiscal year ending on December 31 is on a calendar-year basis.
Q3-3.
Examples of source documents that underlie business transactions are invoices

sent to customers, invoices received from suppliers, bank checks, bank deposit
slips, cash receipt forms, and written contracts.
Q3-4.
A general journal is a book of original entry that may be used for the initial
recording of any type of transaction. It contains space for dates and for accounts
to be debited and credited, columns for the amounts of the debits and credits, and
a posting reference column for numbers of the accounts that are posted.
Q3--5. When entries are posted, the page number and identifying initials of the
appropriate journal are placed next to the amounts in the appropriate accounts.
The account number is entered beside the related amount posted in the journal's
posting reference column. This procedure enables interested users to trace
amounts in the ledger back to the originating journal entry and permits us to know
which entries have been posted.
Q3-6.
A compound journal entry is a journal entry containing more than one debit entry
or one credit entry.
Q3-7.
A chart of accounts is a list of the accounts appearing in the general ledger, with
the account numbering system indicated. Normally the accounts are classified as
asset, liability, owners' equity, revenue, and expense accounts, and often the
numbering system identifies the account classification. For example, a coding
system might assign the numbers 100199 to assets, 200299 to liabilities, and
so on.

3-2
Financial Accounting, 4th Edition
Q3-8.
Many of the transactions reflected in the accounting records through the first two
steps of the accounting cycle affect the net income of more than one period.
Therefore, adjustments to the account balances are ordinarily necessary at the
end of each accounting period to record the proper amount of revenue and to
match expenses with revenue properly. This process is also intended to achieve a
more accurate picture of financial position by adjusting balance sheet amounts to
show unexpired costs, up-to-date amounts of obligations, and so on.
Q3-9.
1. Allocating assets to expense to reflect expenses incurred during the period.

Example: Recording supplies used by debiting Supplies Expense and
crediting Supplies.
2. Allocating payments received in advance by crediting the revenue account to
reflect revenues earned during the period. Example: Recording service fees
earned by debiting Unearned Service Fees and crediting Service Fees
Earned.
3. Accruing expenses to reflect expenses incurred during the period that are not
yet paid or recorded. Example: Recording unpaid wages by debiting Wages
Expense and crediting Wages Payable.
4. Accruing revenues to reflect revenues earned during the period that are not
yet received or recorded. Example: Recording commissions earned by
debiting Commissions Receivable and crediting Commissions Earned.
Q3-10. Jan. 31
Insurance expense (+E, -SE)

Prepaid insurance (-A)
To record insurance expense for January ($1,872/24 = $78).
78
78
Q3-11. A contra account is an account that is related to, and deducted from, another
account when financial statements are prepared or when book values are
computed. Accumulated depreciation is deducted from the cost of a depreciable
asset in computing and portraying the asset's book value.
Q3-12. The building is five years old by the end of 2014, so the accumulated depreciation
of $800,000 represents five years of depreciation at an annual rate of $160,000
($800,000/5). If the annual depreciation is $160,000, then the expected life of the
building must be 25 years.
At the end of 2021, the building will be twelve years old, and the accumulated
depreciation will be 12$160,000, or $1,920,000. The book value of the building
(defined as original cost less accumulated depreciation) will be $2,080,000.

3-3
Q3-13. (a)
(b)
Jan. 1
Cash (+A)
Subscriptions received in advance (+L)
To record receipt of two-year subscriptions.
Jan. 31 Subscriptions received in advance (-L)
Subscriptions revenue (+R,+SE)
To record subscription revenue earned during
January ($9,720/24 = $405).
Q3-14. Jan. 31
Q3-15. Jan. 31
9,720
9,720
405
405
Wages expense (+E, -SE)

Wages payable (+L)
To record unpaid wages for Jan. 3031
[($475/5) 2 = $190].
190
Interest receivable (+A)

Interest income (+R,+SE)
To record interest earned during January.
360
190
360
Q3-16. The temporary accountssometimes called nominal accountsare closed at

year-end. They consist principally of the income statement accounts (expense
and revenue accounts). (The Income Summary account and the Dividend
account are also closed if they are used.)
Q3-17. Step 1) Close revenue accounts: Debit each revenue account for an amount
equal to its balance, and credit the Retained Earnings account for the
total of revenues.
Step 2) Close expense accounts: Credit each expense account for an amount
equal to its balance, and debit the Retained Earnings account for the
total of expenses.
Q3-18. A post-closing trial balance ensures that an equality of debits and credits has
been maintained throughout the adjusting and closing procedures and that the
general ledger is in balance to start the next period. Only balance sheet accounts
appear in a post-closing trial balance. Depreciation Expense and Supplies
Expense are temporary accounts that should have been closed and should not
appear in the post-closing trial balance.

3-4
Q3-19. The cost principle and the matching concept support Dehning's handling of its
catalog costs. Prepaid Catalog Costs is an asset account that is initially recorded
at the amount that the catalogs cost Dehning. This is consistent with the cost
principle that states that assets are initially recorded at the amounts paid to
acquire the assets. The catalogs help Dehning generate sales revenues. The
matching concept states that the catalog costs should be matched as expenses
with the revenues they help generate. Dehning does this by expensing the
catalog costs over their estimated useful lives.
Q3-20. (a) Supplies Expense ($825 + $260 $630 = $455) for the period is omitted from
the income statement, overstating net income by $455 (ignoring taxes).
(b) Both Supplies and Owners' Equity are overstated by $455 on the January 31
balance sheet (again, before considering taxes).

3-5
MINI EXERCISES
M3-21. (45 mintes)
a.
Balance Sheet
Transaction
June 1. Invested
$12,000 cash.
June 2. Paid $950
cash for June rent.
June 3. Purchased
$6,400 of office
equipment on
account.
June 6. Purchased
$3,800 of supplies;
$1,800 cash,
$2,000 on account.
June 11. $4,700 billed
for services.
Cash
Noncash
Liabil+
=
Asset
Assets
ities
+12,000
=
Cash
-950
+6,400
Office
Equipment
-1,800
+3,800
Cash
Supplies
+4,700
Accounts
Receivable
June 30. Paid $350

utilities.
TOTALS
5,750
-950
Retained
Earnings
Accounts
= Payable
+ 11,650
=
+950
Rent Expense
Accounts
= Payable
+4,700
+4,700
Retained
Earnings
Service Fees
Earned
-900
Retained
Earnings
Retained
Earnings
Retained
Earnings
= 5,400
-350
-2,500
+ 12,000 +
4,700
+350
Utilities
Expense
+2,500
Salaries
Expense
3,800
continued next page

3-6
-950
+2,000
Payable
Cash
Net
Income
+6,400
-3,000
= Accounts
Cash
-2,500
Revenues - Expenses =
-3,250
Accounts
Receivable
-350
June 30. Paid $2,500

salaries.
Earned
Capital
Common
Stock
Cash
June 17. Collected

+3,250
Cash
$3,250 on
accounts.
June 19. Paid $3,000
-3,000
Cash
on office equipment
account.
June 25. Paid cash
-900
Cash
dividend of $900.
Income Statement
Contrib.
+
+
Capital
+12,000
+4,700
-350
-2,500
900
M3-21. continued
b. June 1
Cash (+A)
12,000
Common stock (+SE)
Owner invested cash for stock.
12,000
Rent expense (+E, -SE)

Cash (-A)
Paid June rent.
950
950
Office equipment (+A)

Accounts payable (+L)
Purchased office equipment on account.
6,400
Supplies (+A)
Cash (-A)
Purchased $3,800 of supplies; paid $1,800 down
with balance due in 30 days.
3,800
6,400
1,800
2,000
11 Accounts receivable (+A)

Service fees earned (+R,+SE)
Billed clients for services.
4,700
17 Cash (+A)
Accounts receivable (-A)
Collections from clients on account.
3,250
19 Accounts payable (-L)

Cash (-A)
Payment on account.
3,000
4,700
3,250
3,000
25 Retained earnings (-SE)

Cash (-A)
Issued dividends.
900
30 Utilities expense (+E, -SE)

Cash (-A)
Paid utilities bill for June.
350
30 Salaries expense (+E, -SE)

Cash (-A)
Paid salaries for June.
900
350
2,500
2,500
continued next page

3-7
M3-21. concluded
c.
+
June 1
17
+
June 11
Cash (A)
12,000
950
3,250
1,800
3,000
900
350
2,500
June 2
6
19
25
30
30
Accounts Receivable (A) 4,700 3,250

June 17
Common Stock (SE)

12,000
+
June 1
Service Fees Earned (R)

+
4,700
June 11
+
June 6
+
June 3
June 19
Supplies (A)
3,800
Office Equipment (A)

6,400
Accounts Payable (L)
3,000 6,400
2,000
+
June 3
June 6
Retained Earnings (SE)

June 25
900
+
June 2
Rent Expense (E)

950
+
June 30
Utilities Expense (E)

350
+
June 30
Salaries Expense (E)

2,500

3-8
M3-22. (45 minutes)

a.
Income Statement
Balance Sheet
Transaction
April 1. Invested
$9,000 in cash.
April 2. Paid $2,850
cash for lease.
April 3. Borrowed
$10,000.
April 3. Purchased
$5,500 equipment
for $2,500 cash
with rest on
account.
cash for supplies.
April 7. Paid $350
cash for ad.
Cash
Noncash
Liabil+
=
Asset
Assets
ities
+9,000
=
Cash
-2,850
+2,850
Cash
Prepaid Van
Lease
+10,000
+5,500
+3,000
Equipment
Accounts
Payable
=
+4,300
Supplies
-350
Cash
April 21. Billed $3,500

for services
+3,500
Accounts
Receivable

cash on account.
-3,000
April 28. Collected

$2,300 on account.
+2,300
-2,300
Cash
Accounts
Receivable

cash dividend.
-1,000

cash for wages.
-1,750
Common
Stock
Note
Payable
Cash
Cash
Net
Income
+10,000
-2,500
-4,300
Earned
Capital
=
=
Cash
Contrib.
+
+
Capital
+9,000
=
-350
Retained
Earnings
+3,500
+3,500
Retained
Earnings
Cleaning Fees
Earned
-3,000
= Accounts
Cash
+350
Ad.
Expense
-350
+3,500
Payable
Cash
Cash
April 30. Paid $995

cash for gas.
-995
TOTALS
4,555
Cash
+ 13,850
=
-1,000
Retained
Earnings
Retained
Earnings
Retained
Earnings
= 10,000 + 9,000 +
-1,750
-995
-595
3,500
+1,750
Wages
Expense
Van Fuel
Expense
3,095
+995
continued next page

3-9
-1,750
-995
405
M3-22 continued
b. April
Cash (+A)
Common stock (+SE)
Owner invested cash for stock.
9,000
Prepaid van lease (+A)

Cash (-A)
Paid six months' lease on van.
2,850
9,000
2,850
Cash (+A)
Notes payable (+L)
Borrowed money from bank for one year at
10% interest.
10,000
10,000
Equipment (+A)
Cash (-A)
Purchased $5,500 of equipment; paid $2,500 down
with balance due in 30 days.
5,500
Supplies (+A)
Cash (-A)
Purchased supplies for cash.
4,300
Advertising expense (+E, -SE)

Cash (-A)
Paid for April advertising.
2,500
3,000
4,300
350
350

Cleaning fees earned (+R, +SE)
Billed customers for services.
3,500

Cash (-A)
Payment on account.
3,000
28 Cash (+A)
Collections from customers on account.
2,300

Cash (-A)
Issued cash dividends.
1,000
30 Wages expense (+E, -SE)

Cash (-A)
Paid wages for April.
1,750
30 Van fuel expense (+E, -SE)

Cash (-A)
Paid for gasoline used in April.
3,500
3,000
2,300
1,000
1,750
995
995
continued next page

3-10
M3-22 concluded
c.
+
April 1
3
28
+
April 4
Cash (A)
9,000
2,850
April 2
10,000
2,500
3
2,300
4,300
4
350
7
3,000
23
1,000
29
1,750
30
995
30
Supplies(A)
4,300

April 23
3,000
3,000
-
Common Stock (SE)

9,000
Van Fuel Expense (E)

995
Accounts Receivable (A) 3,500

2,300 April 28
+
April 2
Prepaid Van Lease (A)

2,850
+
April 3
-
+
April 3
+
April 1
+
Advertising Expense (E)
April 7
350
+
April 30
+
April 21
Equipment (A)
5,500
Notes Payable (L)

10,000
+
April 3
- Retained Earnings (SE)

April 29
1,000
-
+
April 30
Cleaning Fees Earned (R) +

3,500 April 21
Wages Expense (E)

1,750

3-11
M3-23. (20 minutes)

a.
Balance Sheet
Income Statement
Cash
Noncash
LiabilContrib.
+
=
+
+
Transaction
Asset
Assets
ities
Capital
1. Received $20,100 in +20,100
+20,100
advance for
Cash
= Unearned
Service
contract work.
Earned
Capital
Net
Income
-
Fees
Jan.
1 Cash (+A)
Unearned service fees (+L)
To record fee received in advance.
20,100
20,100
b.
Balance Sheet
Cash
Asset
Transaction
2. Adjusting entry for

work completed by
Jan. 31.
Income Statement
Noncash
LiabilContrib.
=
+
+
Assets
ities
Capital
-3,350
Unearned
=
Service
Fees
Earned
Capital
+3,350
Retained
Earnings
Net
Income
+3,350
+3,350
Service
=
Fees
Jan. 31 Unearned service fees (-L)

Service fees (+R, +SE)
To reflect January service fees earned on
contract ($20,100/6 = $3,350).
3,350
3,350
c.
Balance Sheet
Cash
Asset
Transaction
fees earned but not
billed.
Jan. 31
Noncash
Liabil=
Assets
ities
+570
Fees
=
Income Statement
Contrib.
+
Capital
Receivable
Fees receivable (+A)

Service fees (+R, +SE)
To record unbilled service fees earned
at January 31.
Earned
Capital
+570
Retained
Earnings
Net
Income
+570
+570
Service
=
Fees
570
570

3-12
M3-24. (15 minutes)

1.
Balance Sheet
Cash
Asset
Transaction
prepaid insurance.
Jan.
Noncash
Liabil+
=
Assets
ities
-185
=
Prepaid
Income Statement
Contrib.
+
+
Capital
Retained
Earnings
Insurance
31
Earned
Capital
-185
Net
Income
+185
-185
- Insurance =
Expense

To record January insurance expense
($6,660/36 = $185).
185
185
2.
Balance Sheet
Cash
Asset
Transaction
supplies used.
Jan.
31
Noncash
Liabil=
Assets
ities
-1,080
=
Supplies
Income Statement
Contrib.
+
Capital
Earned
Capital
-1,080
-
Retained
Earnings
Supplies expense (+E, -SE)

Supplies (-A)
To record January supplies expense
($1,930 $850 = $1,080).
+1,080
Supplies
Expense
Net
Income
-1,080
1,080
1,080
3.
Balance Sheet
Cash
Asset
Transaction
Noncash
Assets
3. Adjusting entry
for
depreciation
of equipment.
Jan.
31
Contra
Assets
+62
Accumulated
Depreciation
Liabilities
Income Statement
+
Contrib.
Capital
Earned
Capital
Revenues
-62
Retained
Earnings
Depreciation expenseEquipment (+E, -SE)

Accumulated depreciationEquipment (+XA, -A)
To record January depreciation on office
equipment ($5,952/96 = $62).
Expenses
Net
Income
+62
-62
Depreciation
Expense
62
62
continued next page

3-13
M3-24. concluded
4.
Balance Sheet
Cash
Asset
Transaction
rent.
Noncash
LiabilContrib.
+
=
+
+
Assets
ities
Capital
-875
= Unearned
Rent
Revenue
Income Statement
Earned
Capital
+875
Net
Income
+875
+875
Retained Rent Revenue
=
Earnings
Jan. 31 Unearned rent revenue (-L)

Rent revenue (+R, +SE)
To record portion of advance rent earned
in January.
875
875
5.
Balance Sheet
Cash
Asset
Transaction
accrued salaries.
Jan.
Noncash
LiabilContrib.
=
+
+
Assets
ities
Capital
+490
= Salaries
Payable
Income Statement
Earned
Capital
-490
Retained
Earnings

Salaries payable (+L)
To record accrued salaries at January 31.
-
+490
Salaries
Expense
Net
Income
-490
490
490

3-14
M3-25. (15 minutes)

(All amounts in $ millions.)
a.
Balance Sheet
Cash
Asset
Transaction
Inventory purchases
(total).
Noncash
= Liabilities
Assets
+3,734
+3,734
Inventory
Income Statement
Contrib.
+
Capital
Earned
Capital
Accounts
Payable
Net
Income
Inventories (+A).. 3,734

Accounts payable (+L)..
3,734
To record total purchases made at various dates.
b. Beginning AP balance + Purchases Payments = Ending AP balance.
So $447 + $3,734 - Payments = $510. Thus Payments = $3,671
c.
Income Statement
Balance Sheet
Cash
Asset
Transaction
+ Noncash Assets = Liabilities
Adjusting entry for cost

of goods sold for
2011.
-3,617
Inventory
Contrib.
Capital
Earned
Capital
-3,617
Retained
Earnings
Revenues
Expenses
= Net Income
+3,617
Cost of Goods
Sold
Beginning Inv balance + Purchases Cost of goods sold = Ending Inv balance. So
$897 + $3,734 COGS = $1.014. Thus COGS = $3,617
*
Cost of goods sold (+E, -SE)...

3,617
Inventories (-A)
3,617
To record cost of goods sold for the year ended 1/31/2012.
(Note: the COGS figure can be verified from the firms financial statements.
Purchases can not be so determined, but could be established by working
backwards. See M3-29.)

3-15
-3,17
M3-26. (15 minutes)

ARCHITECT SERVICES COMPANY
Statement of Stockholders Equity
For Year Ended December 31, 2014
Common
Stock
Balance at December 31, 2013 ..............$30,000
Stock issuance ..................................... 6,000
Dividends .............................................
Net income ........................................... _____
Balance at December 31, 2014 ..............$36,000
Retained
Earnings
$18,000
(9,700)
29,900
$38,200
Total
Stockholders
Equity
$48,000
6,000
(9,700)
29,900
$74,200
M3-27. (5 minutes)
Ending balance = Beginning balance + Credit from closing revenue Debit from closing
expenses: $137,600 = $99,000 + $347,400 - $308,800
M3-28. (15 minutes)
a.
Date 2013 Description

Dec. 31 Commissions revenue (-R)
Retained earnings (+SE)
To close the revenue account.
Wages expense (-E)
Insurance expense (-E)
Utilities expense (-E)
Depreciation expense (-E)
To close the expense accounts.
Debit
Credit
84,900
84,900
55,900
36,000
1,900
8,200
9,800
Closing the revenue and expense accounts into retained earnings has the effect of
increasing the retained earnings balance by an amount equal to net income (revenue
minus expenses). The balance of Smiths Retained Earnings after closing entries are
posted is:
$101,100 credit ($72,100 + $84,900 - $55,900).
continued next page

3-16
M3-28 concluded
b.
+
Bal.
Bal.
+
Bal.
Bal.
+
Bal.
Bal.
Wages Expense (E) 36,000 36,000 (2)Dec. 31

0
Insurance Expense (E) 1,900
1,900 (2)Dec. 31
0
Depreciation Expense (E) 9,800
9,800 (2)Dec. 31
0
+
Bal.
Bal.
Utilities Expense (E)

8,200
8,200 (2) Dec. 31
0
- Commissions Revenue (R) +

(1)Dec. 31
84,900
84,900
Bal.
0
Bal.
- Retained Earnings (SE) +
(2)Dec. 31
55,900
72,100 Bal.
84,900 (1)Dec.31
101,100 Bal. Dec.31
M3-29. (30 minutes)

(All amounts in $ millions.)
a.
Balance Sheet
Cash
Asset
Transaction
Recognize cost of
goods sold
Noncash
=
Assets
-5,206
Merchandise
=
Inventory
Liabilities
Income Statement
Contrib.
+
Capital
Earned
Capital
-5,206
Retained
Earnings
Revenues -
Cost of goods sold (+E,-SE) ....................................................

Merchandise Inventory(-A) ..................................................
Expenses
+5,206
Cost of
goods sold
=
=
5,206
5206
To recognize the cost of goods sold.

continued next page

3-17
Net
Income
-5,206
M3-29. concluded
b. Beginning Inv balance + Purchases Cost of goods sold = Ending Inv balance. So
$1,370 + Purchases - $5,206 = $1,375. Thus purchases = $5,211
Balance Sheet
Cash
Asset
Transaction
Recognize cost of
goods sold.
Noncash
Liabil
+
=
Assets
-ities
+5,211
+5,211
Merchandise = Account
inventory
Payable
Income Statement
Contrib.
+
Capital
Earned
Capital
Revenues -
Expenses
Merchandise Inventory(+A) .....................................................

Accounts Payable (+L) ........................................................
Net
Income
-
5,211
5,211
To recognize the purchases on account.
c. Beginning AP balance + Purchases Payments = Ending AP balance.

So $869 + $5,211 - Payments = $949. Thus Payments = $5,131
M3-30 (10 minutes)
a.
Balance Sheet
Transaction
Cash
Asset
a. Dec. 31 Interest
earned.
Noncash
Liabil=
Assets
ities
+600
=
Interest
Income Statement
Contrib.
+
Capital
Earned
Capital
+600
Retained
Earnings
Receivable
Net
Income
+600
+600
=
Interest
Income
Dec. 31 Interest receivable (+A)

Interest income (+R, +SE)
To record accrued interest income.
b. Dec. 31
600
600
Interest income (-R)

To close the Interest Income account.
2,400
2,400
c.
Income Statement
Balance Sheet
Transaction
c. 1/31 Receipt of
$900 interest.
Cash
Asset
+900
Cash
Noncash
Liabil=
Assets
ities
-600
=
Interest
Contrib.
+
Capital
Receivable
2014
Jan. 31 Cash (+A)
Interest receivable (-A)
To record cash receipt of interest.
Earned
Capital
+ 300
Retained
Earnings
Net
Income
+300
+300
=
Interest
Income
900
300
600

3-18
EXERCISES
E3-31. (30 minutes)
a.
Dec. 31
31
Service fees earned (-R,-SE)

80,300
Retained earnings (-SE)

Rent expense (-E)
Salaries expense (-E)
Supplies expense (-E)
82,300
80,300
20,800
45,700
5,600
10,200
b.
+
Bal.
Bal.
Rent Expense (E)

20,800
20,800
0
+
(2)
Bal.
Bal.
+
Bal.
Bal.
+
Bal.
Bal.
(2)

45,700
45,700
0
Retained Earnings (SE)
82,300
67,000
80,300
65,000
(2)
(1)
Supplies Expense (E)

5,600
5,600
0
Depreciation Expense (E)
10,200
10,200
0
Service Fees Earned (R)

80,300
80,300
0
(2)
(2)
Bal.
Bal.
+
Bal.
(1)
Bal.
Brooks Consulting earned a loss during the period (expenses exceeded

revenues by $2,000), so the ending retained earnings is lower than the
beginning retained earnings (even though no dividends were paid).

3-19
E3-32. (30 minutes)

a.
Balance Sheet
Cash
Asset
Transaction
Noncash
Assets

depreciation:
equipment.
supplies
expense.
-1,890
Supplies

utilities expense.
+610
Accumulated
Depreciation

premium
revenues.
+300
Interest
Receivable
-2,290
610
Earned
Capital
Revenues
Expenses
Net
Income
+610
Depreciation
Expense
-610
-1,890
Retained
Earnings
+1,890
Supplies
Expense
-1,890
-390
Retained
Earnings
+390
Utilities
Expense
-390
-700
Retained
Earnings
+700
Rent
Expense
-700
-468
Unearned
Premium
Revenue
=
+965
Wages
Payable
+468
Retained
Earnings
+468
-965
+300
Retained
Earnings
+300
Interest
Income
+300
-3,787
768
-3,787
+390
Utilities
Payable

interest earned.

wage expense.
Income Statement
Contrib.
+
Capital
-610
Retained
Earnings
-700
Prepaid
Rent
Liabilities

rent expense.
TOTALS
Contra
Assets
887
+468
Premium
Revenue
-965
Retained
Earnings
b. 1. Depreciation expenseEquipment (+E,-SE)

Accumulated depreciationEquip (+XA)
+965
Wage
Expense
4,555
610
610
To record depreciation for the period.
2. Supplies expense (+E,-SE)

Supplies (-A)
1,890
1,890
To record supplies expense for the period ($2,990
$1,100 = $1,890).
3. Utilities expense (+E, - SE)

Utilities payable (+L)
390
390
To record accrued utilities expense.
4. Rent expense (+E,-SE)

Prepaid rent (-A)
700
700
To record rent expense for the month ($2,800/4 = $700).
5. Unearned premium revenue (-L)

Premium revenue (+R,+SE)
To record premium revenue earned [($624/12)
468
468
9 = $468].
6. Wages expense (+E,-SE)

Wages payable (+L)
965
965
To record accrued wages at the end of the period.
7. Interest receivable (+A)

Interest income (+R,+SE)
300
300
To accrue interest earned but not yet received.

3-20
E3-33. (15 minutes)

a.
Balance Sheet
Cash
Asset
Transaction
Noncash
Assets
a. Adjusting entry for

salaries expense.
= Liabilities +
Income Statement
Contrib.
+
Capital
+4,700
= Salaries
Payable
Earned
Capital
-4,700
Retained
Earnings
2013
Dec. 31 Salaries expense (+E,-SE)
To record accrued salaries payable.
b.
Revenues -
Expenses
+4,700
Salaries
Expense
Net
Income
-4,700
4,700
4,700
31 Retained earnings (-RE)

250,000
250,000
To close the Salaries Expense account.
c.
Balance Sheet
Transaction
c. Paid salaries.
2014
Jan.
Cash
Asset
-12,000
Cash
Noncash
Assets
= Liabilities +
Income Statement
Contrib.
+
Capital
-4,700
= Salaries
Payable
Earned
Capital
-7,300
Retained
Earnings
Revenues -
7 Salaries payable (-L)

Salaries expense (+E,-SE)
Cash (-A)
Expenses
+7,300
Salary
Expense
Net
Income
-7,300
4,700
7,300
12,000
To record payment of salaries.
E3-34. (20 minutes)

a. Balance, January 1 = $960 + $800
$620 = $1,140.
b. Amount of premium = $82 12 = $984.

Therefore, five months' premium ($984 $574 = $410) has expired by January 31.
The policy term began on and has been in effect since September 1, 2013.
c.
Wages paid in January = $3,200
$500 = $2,700.
d. Monthly depreciation expense = $8,700/60 months = $145.

Fields has owned the truck for 18 months ($2,610/$145 = 18).

3-21
E3-35. (30 minutes)

a.
Balance Sheet
Cash
Asset
Transaction
1. 7/31 Adjusting entry for

rent expense.
ad. expense.
supplies expense.
fees revenue.
Noncash
Assets
-475
Prepaid
Rent
-210
Prepaid
Advertising
-1,900
Supplies
Income Statement
Contrib.
+
+
Capital
=
=
+800
Fees
Receivable

fees revenue.
TOTALS
Liabilities
-1,785
-300
Unearned
Refinish.
Fees
=
-300
Earned
Capital
-475
Retained
Earnings
- 210
Retained
Earnings
-1,900
Retained
Earnings
+800
Retained
Earnings
+300
Retained
Earnings
+800
Refinish.
Revenue
+300
Refinish.
Revenue
-1,485
1,100
Revenues -
b. July 31 Rent expense (+E,-SE)

Prepaid rent (-A)
Expenses
+475
Rent
Expense
+210
Advertising
Expense
+1,900
Supplies
Expense
=
=
-210
=
-1,900
=
+800
=
+300
=
2,585
475
475
To record July rent expense ($5,700/12 = $475).
31 Advertising expense (+E,-SE)

Prepaid advertising (-A)
210
210
To record July advertising expense ($630/3 = $210).
31 Supplies expense (+E,-SE)

Supplies (-A)
1,900
1,900
To record supplies expense for July

($3,000 $1,100 = $1,900).
31 Fees receivable (+A)

Refinishing fees revenue (+R,+SE)
800
800
To record unbilled revenue earned during July.
31 Unearned refinishing fees (-L)

Refinishing fees revenue (+R,+SE)
300
300
To record portion of advance fees earned in July ($600/2 = $300).
continued next page

3-22
Net
Income
-475
-1,485
E3-35. concluded
c.
Bal.
Bal.
+ Prepaid Rent (A) 5,700

475
5,225
(1)
Bal.
Bal.
Bal.
Bal.
+ Prepaid Advertising (A) 630

210
420
(2)
(5)
(4)
+ Fees Receivable (A) 800
+ Supplies (A) 3,000

1,900
1,100
(3)
- Unearned Finishing Fees (L) +

300
600
Bal.
300
Bal.
- Refinishing Fees Revenue (R) +
2,500 Bal.
800 (4)
300 (5)
3,600 Bal.
+

1,900
(3)
+
(2)
Advertising Expense(E) 210
+
(1)
Rent Expense (E)

475

3-23
E3-36. (30 minutes)

(All amounts in $ thousands.)
a.
Balance Sheet
Transaction
Cash
Asset
Recognize
inventory
purchases.
Noncash
Assets
+482,303
Inventory
Liabilities
Income Statement
Contrib.
Capital
Earned
Capital
= +482,303
Account
Payable
Revenues -
Expenses
Inventory (+A) ......................................................................... 482,303*

Accounts payable (+L) ........................................................
Net
Income
482,303
To recognize inventory purchases.
*Beginning Inv balance + Purchases Cost of goods sold = Ending Inv. So $43,526
+ Purchases - $456,664= $69,165. Thus purchases = $482,303
b. Beginning compensation payable + Compensation expense Compensation paid =
Ending compensation payable, so
$10,529 + $40,000 Payments = $10,841
Payments = $39,688
c.
Accrued compensation is reported as a current liability.
E3-37. (30 minutes)

a. Dec. 31
Service fees earned (-R)

Interest income (-R)
92,500
2,200
94,700
To close the revenue accounts.
31

Advertising expense (-E)
Income tax expense (-E)
64,700
41,800
4,300
8,700
9,900
continued next page

3-24
E3-37. concluded
b.
64,700 42,700
Bal.
94,700
(1)
72,700
Bal.
(2)
- Service Fees Earned (R) +

92,500
92,500
Bal.
0
Bal.
- Interest Income (R) +
2,200
2,200
Bal.
0
Bal.
(1)
(1)
+ Salaries Expense (E) Bal.

41,800 41,800
Bal.
0
+ Depreciation Expense (E) Bal.
8,700
8,700
Bal.
0
(2)
Bal.
Bal.
(2)
Bal.
Bal.
+ Advertising Expense (E) 4,300

4,300
0
+ Income Tax Expense(E) 9,900
9,900
0
(2)
(2)
E3-38. (15 minutes)

a.
Balance Sheet
Transaction
(1) Collect
deposits from
customers.
(2) Recognize
income on
completed
customer orders.
(1)
Cash
Asset
+200,000
Cash
Noncash
Assets
Liabilities
Income Statement
+
Contrib.
Capital
Earned
Capital
Revenues -
+200,000
= Customer
Expenses
Net
Income
Deposits
+489,004
Cash
-189,956
= Customer
Deposits
+678,960 +678,960
Retained
Earnings
Cash (+A)
Customer deposits* (+L)
Sales
Revenue
+678,960
200,000
200,000
To record unearned customer deposits.
(2)
Customer deposits* (-L) ...........................................................

189,956 **
Cash (+A)
489,004
Sales revenue (+R, +SE) .....................................................
678,960
To record sales revenue and recognized deposits earned.

* Also sometimes called Unearned Customer Deposits
** $52,605 + $200,000 Deposits earned = $62,649; Deposits earned = $189,956.
continued next page
3-25
E3-38. concluded
b.
Transaction
Record inventory
purchases.
Cash
Asset
Noncash
Assets
-337,152
Inventory
Balance Sheet
Liabil
=
+
-ities
=
Income Statement
Contrib.
+
Capital
Earned
Capital
Revenues -
+337,152
Acc.
Payable
Expenses
Inventory (+A) .........................................................................

Accounts Payable (+L) ......................................................
Net
Income
337,152
337,152
To recognize inventory purchases. BI +Purchases EI = COGS. So

$134,040 + Purchases - $329 500 = $141,692.
Thus: Purchases =$337,152
c. Customer Deposits are reported as a current liability.

E3-39. (40 minutes)
a.
SOLOMON CORPORATION
Income Statement
Service fees earned ........................................................................................................
$71,000
Rent expense ..................................................................................................................
(18,000)
Salaries expense ............................................................................................................
(37,100)
Depreciation expense...
(7,000)
Net income......................................................................................................................
$8,900
SOLOMON CORPORATION
Balance at December 31, 2012 ...........................
Common
Stock
$43,000
Retained
Earnings
$20,600*
Total Stockholders
Equity
$63,600
Stock issuance .....................................................

Dividends .............................................................
(8,000)
(8,000)
Net income ...........................................................
_______
8,900
8,900
Balance at December 31, 2013 ...........................
$43,000
$21,500
$64,500
*12,600 + 8,000 The dividend was paid and debited to retained earnings prior to the end of the period.
continued next page
3-26
E3-39. continued
SOLOMON CORPORATION
Balance Sheet
December 31, 2013
Assets
Liabilities
$ 4,000 Notes payable
6,500
Total Liabilities
Cash
Accounts receivable
Equipment
Less:Accumulated
depreciation
$ 10,000
10,000
$ 78,000
64,000
Owners Equity
14,000
Common stock
Retained earnings
$74,500 Total Liabilities and Owners Equity
Total Assets
43,000
21,500
$74,500
b.
1.
2.
3.
4.
Service fees earned (-R) .........................................................

71,000
Retained earnings (+SE) ....................................................
71,000
Retained earnings (-SE)..........................................................

18,000
Rent expense (-E)...............................................................
18,000
Retained earnings (-SE)..........................................................

37,100
Salaries expense (-E) .........................................................
37,100
Retained earnings (-SE)..........................................................7,000

Depreciation expense (-E) .................................................
7,000
The cash dividend has already been paid and is already reflected in the adjusted
trial balance.
continued next page

3-27
E3-39. concluded
c. Only the T-accounts affected by closing process are shown here.
7,000
7,000
Bal
0
Bal.
Bal.
+ Salaries Expense (E) 37,100 37,100

0
(4)
(1)

71,000
71,000
Bal.
0
Bal.
+
(3)
Bal.
Bal
(2-4)
Rent Expense (E) 18,000

18,000
0

62,100
12,600
71,000
21,500
(2)
Bal.
(1)
Bal.

3-28
PROBLEMS
P3-40. (90 minutes)
a.
+
Cash (A)
Apr. 1
5
18
Bal.
11,500
1,800
4,900
2,880
6,100
1,000
675
100
2,500
+
Apr. 1
2
2
29
30
30
4,945
Accounts Receivable (A)
Apr. 12
30
Bal.
+
Apr. 5
Unadj. bal.
Adj. bal.
+
Apr. 1
Unadj. bal.
Adj bal.
+
Apr. 2
Bal.
+
Apr. 30
Prepaid Insurance (A)

2,880
2,880 120 (d)
2,760
Equipment (A)
3,100
3,100
Adj. Bal.
+
Apr. 30
Bal.
Advertising Expense (E)

100
100
5,500 4,900
4,000
4,600
Apr. 18
Supplies (A)
1,200
1,200 800 (d)
400
Apr. 30
+
Apr. 30
Apr. 2
Bal.
-
Roofing Fees Earned (R)

+
5,500
Apr. 12
4,000
30
9,500 Unadj. bal.
450 (d)
30
9,950
Adj. Bal.
(d) 800
800
Trucks (A)
6,100
6,100

2,100
1,200
3,300
+
Apr. 2
5
Bal.
Unearned Roofing Fees (L) +

1,800
Apr. 5
Apr. 30
(d) 450 1,800 Unadj. bal
1,350 Adj. Bal
Common Stock (SE)

11,500
11,500
+
Apr. 29
Bal.
Fuel Expense (E)

675
675
+
Apr. 1
Bal.
-
continued next page

3-29
P3-40. continued
a. continued
+
Insurance Expense (E)
Apr. 30
(d) 120
Adj. Bal.
120
+ Depreciation Expense Equip. (E) Apr. 30
(d)
35
Adj. Bal.
35
+
Wages Expense (E)
Apr. 30
2,500
Bal.
2,500
- Accumulated Deprec. Equip. (XA) +
35 (d) Apr. 30
35
Adj. Bal.
+ Depreciation Expense - Trucks (E) Apr. 30

(d) 125
Adj. Bal.
125
- Accumulated Deprec. Trucks (XA) +

125 (d) Apr. 30
125
Adj. Bal
b.
Balance Sheet
Cash
Noncash
+
Transaction
Asset
Assets
Apr. 1. Cash received for +11,500
stock.
Cash
Apr. 1. Purchase liability
insurance.
-2,880
Cash
Apr. 2. Purchase truck for

cash.
Apr. 2. Purchase
equipment.
-6,100
Cash
-1,000
Cash
Apr. 5. Purchase supplies

on account.
Apr. 5. Cash in advance
for roofing repairs.
+1,800
Cash
Apr. 12. Bill customers for

services.
Apr. 18. Collected cash
on account.
+4,900
Cash
= Liabilities
=
+2,880
Prepaid
=
Insurance
+ 6,100
=
Truck
+3,100
+2,100
Equipment = Accounts
Payable
+ 1,200
+1,200
Supplies = Accounts
Payable
+1,800
Unearned
=
Roofing
Fees
+5,500
Accounts =
Receivable
-4,900
Accounts =
Receivable
Apr. 29. Paid cash for

fuel.
-675
Cash
Apr. 30. Paid cash for

ads.
-100
Cash
Apr. 30. paid cash

wages.
-2,500
Cash
4,945
+4,000
Accounts =
Receivable
+
17,880
=
Apr. 30. Bill customers for

services.
Totals
Income Statement
Contrib.
+
+
Capital
+11,500
Common
Stock
5,100
Earned
Capital
+5,500
Retained
Earnings
11,500
-675
Retained
Earnings
-100
Retained
Earnings
-2,500
Retained
Earnings
+4,000
Retained
Earnings
6,225
Revenues -
Expenses
+5,500
Roofing Fees Revenue
+5,500
+675
- Fuel Expense =
-675
+100
- Ad. Expense =
-100
+2,500
Wages
Expense
-2,500
+4,000
Roofing fees
Earned
9,500
Net
Income
=
+4,000
=
3,275
6,225
continued next page

3-30
P3-40. continued
b. continued
Date 2014
Apr.
1
12
18
29
30
30
30
Description
Cash (+A)
Common stock (+SE)
Owner invested cash.
Debit Credit
11,500
11,500
Prepaid insurance (+A)

Cash (-A)
Paid two-year premium on liability insurance policy.
2,880
Trucks (+A)
Cash (-A)
Purchased used truck for $6,100 cash.
6,100
Equipment (+A)
Cash (-A)
Purchased ladders and other equipment, $1,000 down with
$2,100 balance due in 30 days.
3,100
Supplies (+A)
Purchased supplies on account.
1,200
Cash (+A)
Unearned roofing fees (+L)
Received advance payment for services.
Accounts receivable (+A)
Roofing fees earned (+R,+SE)
Cash (+A)
Collection on account from customers.
2,880
6,100
1,000
2,100
1,200
1,800
1,800
5,500
5,500
4,900
4,900
Fuel expense (+E,-SE)

Cash (-A)
Paid truck fuel bill for April.
675
Advertising expense (+E,-SE)

Cash (-A)
Paid for April newspaper advertising.
100
675
100

Cash (-A)
Paid wages.
2,500

Roofing fees earned (+R, +SE)
4,000
2,500
4,000
Billed customeers for services.

continued next page
3-31
P3-40. continued
c.
LOUGEE ROOFING SERVICE
Unadjusted Trial Balance
April 30, 2014
Debit
$ 4,945
4,600
1,200
2,880
6,100
3,100
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Trucks
Equipment
Accounts Payable
Unearned Roofing Fees
Common Stock
Roofing Fees Earned
Fuel Expense
Advertising Expense
Wages Expense
Credit
$ 3,300
1,800
11,500
9,500
675
100
2,500
$26,100
$26,100
d.
Balance Sheet
Transaction
Cash
Asset
1. Recognize
one month of
insurance
expense.
2. Recognize
supplies
expense.
3. Recognize
depreciation
expense
Trucks.
4. Recognize
depreciation
expense on
equipment.
5. Recognize
roofing fees
earned.
Totals
Noncash
+
Assets
-120
Prepaid
Insurance
-800
Supplies
-920
Contra
Assets
= Liabilities
Income Statement
+
Contrib.
Capital
Earned
Capital
-120
Retained
Earnings
Revenues
Expenses
+120
Insurance
Expense
Net
Income
=
-120
=
+800
=
Supplies
Expense
+125
=
Depreciation
Expense
-800
+125
=
Accumulated
Depreciation
-800
Retained
Earnings
-125
Retained
Earnings
+35
=
Accumulated
Depreciation
-35
Retained
Earnings
+35
=
Depreciation
Expense
-35
-450
Unearned
Roofing
Fees
+450
-450
-630
160
+450
Retained
Earnings
+450
Roofing
Fees
Earned
-630
450
1,080
continued next page

3-32
-125
P3-40. concluded
d. continued
Date 2014
Description
April 30 Insurance expense (+E,-SE)
Debit
120
Credit
120
To record April insurance expense ($2,880/24 months = $120).
30
Supplies expense (+E,-SE)

Supplies (-A)
To record April supplies expense ($1,200
30
800
800
$400 = $800).
Depreciation expenseTrucks (+E,-SE)

Accumulated depreciationTrucks (+XA,-A)
125
125
To record April depreciation on trucks.
30
Depreciation expenseEquipment (+E,-SE)

Accumulated depreciationEquipment (+XA,-A)
35
35
To record April depreciation on equipment.
30
Unearned roofing fees (-L)

Roofing fees earned (+R,+SE)
450
450
To record portion of advance payment earned in April

($1,800/4 = $450).

3-33
P3-41. (40 minutes)

SNAPSHOT COMPANY
December 31, 2013
a.
Debit
$2,150
3,800
12,600
2,970
4,250
22,800
Cash
Accounts Receivable
Prepaid Rent
Prepaid Insurance
Supplies
Equipment
Accounts Payable
Unearned Photography Fees
Common Stock
Photography Fees Earned
Wages Expense
Utilities Expense
Credit
$1,910
2,600
24,000
34,480
11,000
3,420
$62,990
______
$62,990
b.
Balance Sheet
Transaction
1. Fees earned
but not
received.
2. Recognize
depreciation
expense for
one year.
3. Recognize
utilities
expense.
4. Recognize
rent expense
for year.
5. Recognize
photo
revenues.
6. Recognize
insurance
expense.
7. Recognize
supplies
expense.
8. Recognize
wages
expense.
Totals
Cash
Asset
Noncash
+
Assets
+925
Fees
Receivable
-
-6,300
Prepaid
Rent
-990
Prepaid
Insurance
-2,730
Supplies
-9,095
Contra
Assets
= Liabilities
=
+2,280
Accumulated
=
Depreciation
+400
Utilities
Payable
-2,600
= Unearned
Photo Fees
Income Statement
Contrib.
Capital
2,280
+375
Wages
Payable
= -1,825
Earned
Capital
+925
Retained
Earnings
-2,280
Retained
Earnings
-400
Retained
Earnings
-6,300
Retained
Earnings
+2,600
Retained
Earnings
-990
Retained
Earnings
-2,730
Retained
Earnings
-375
Retained
Earnings
-9,550
Revenues
Expenses
+925
Photography Fees Earned
-
3,525
+2,280
Depreciation
=
Expense
+400
Utilities
Expense
+6,300
Rent
Expense
-2,280
-400
=
-6,300
=
+2,600
=
+990
Insurance
Expense
+2,730
Supplies
Expense
+375
Wages
Expense
13,075
-990
=
-2,730
=
-375
=
=
continued next page

3-34
Net
Income
+925
+2,600
Photography Fee Earned
-
-9,550
P3-41. continued
b. continued
Dec. 31
Photography fees earned (+R, +SE) `
Debit
925
Credit
925
To record revenue earned but not billed.
31
Depreciation expense (+E,-SE)

Accum. depreciationEquipment (+XA, -A)
2,280
2,280
To record depreciation for the year

($22,800/10 years = $2,280).
31
Utilities expense (+E, -SE)

400
400
To record estimated December utilities expense.
31

Prepaid rent (-A)
6,300
6,300
To record rent expense for the year

($12,600/2 years = $6,300).
31
Unearned photography fees (-L)

Photography fees earned (+R, +SE)
2,600
2,600
To record advance payments earned during the year.
31

990
990
To record insurance expense for the year

($2,970/3 years = $990).
31
Supplies expense (+E,-SE)

Supplies (-A)
2,730
2,730
To record supplies expense for the year

($4,250 $1,520 = $2,730).
31

Wages payable(+L)
375
375
To record unpaid wages at December 31.
continued next page

3-35
P3-41. concluded
c.
+ Cash (A) Unadj. bal.
2,150
Adj. bal.
2,150
+ Accounts Receivable (A) Unadj. bal.
3,800
Adj. bal.
3,800
+ Fees Receivable (A) Dec. 31
(1) 925
Adj. bal.
925
+ Prepaid Rent (A) Unadj. bal.
Dec.31
12,600 6,300 (4)
Adj. bal.
6,300
+ Prepaid Insurance (A) Unadj. bal.
Dec.31
2,970 990 (6)
Adj. bal.
1,980
+ Supplies (A) Unadj. bal.
Dec.31
4,250 2,730 (7)
Adj. bal.
1,520
+ Equipment (A) Unadj. bal. 22,800

Adj. bal.
22,800
- Accum. Depreciation Equip. (XA) +
Dec.31
2,280 (2)
Adj. Bal.
2,280
+ Supplies Expense (E) (7) 2,730
Adj. bal.
2,730
+ Insurance Expense (E) Dec. 31
(6) 990
Adj. bal.
990
Dec. 31
- Accounts Payable (L) +

Unadj. bal.
1,910
Adj. bal.
1,910
- Unearned Photo Fees (L) +
Unadj. bal.
Dec.31
(5) 2,600 2,600
Adj. bal.
0
- Utilities Payable (L) +
Dec.31
400 (3)
Adj. bal.
400
- Wages Payable (L) +
Dec.31
375 (8)
Adj. bal.
375
- Common Stock (SE) +
Unadj. bal.
24,000
Adj. bal.
24,000
- Photo Fees Earned (R) +
Unadj. bal
34,480
Dec.31
925 (1)
Dec.31
2,600 (5)
Adj. bal.
38,005
+ Wages Expense (E) Unadj. bal.
11,000
Dec.31
(8) 375
Adj. Bal.
11,375
+ Utilities Expense (E) Unadj. bal.
3,420
Dec.31
(3) 400
Adj. Bal.
3,820
+ Depreciation Expense Equip. (E) Dec.31
(2) 2,280
Adj. Bal.
2,280
+ Rent Expense (E) Dec.31
(4) 6,300
Adj. Bal.
6,300

3-36
P3-42. (90 minutes)

a.
Balance Sheet
Transaction
Cash
Asset
Noncash
Assets
-775
1. Recognize
rent
expense.
2. To recognize
supplies
expense.
3. To recognize
depreciation
expense.
4. To recognize
wages
expense.
5. To recognize
utilities
expense.
6. To recognize
fees earned.
Prepaid
Rent
-1,700
Supplies
Contra
Assets
Date 2014
June 30
-2,095
Expenses
Net
Income
+775
-775
Rent
Expense
-1,700
+74
Retained
Earnings
-74
+210
-210
+300
-300
Utilities
Expense
+380
+380
Retained
Earnings
Service
Fees
Earned
-2,679
380
Description
Prepaid rent (-A)
+74
Wages
Expense
-300
Utilities
Payable
= 510
Retained
Earnings
= +300
= -1,700
Depreciation
Expense
-210
Wages
Payable
74
Retained
Earnings
= +210
+1,700
Supplies
Expense
-74
Accum.
Deprec.
=
-
Retained
Earnings
+380
Accounts
Receivable
Revenues
-775
Earned
Capital
Retained
Earnings
Totals
Income Statement
Contrib.
+
Capital
Liabilities
Debit
775
= +380
3,059
= -2,679
Credit
775
To record June rent expense ($3,100/4 months = $775).
30

Supplies (-A)
To record June supplies expense (2,520
30
1,700
1,700
$820 = $1,700).
Depreciation expenseEquip (+E, -SE)

Accum. depreciationEquipment (+XA, -A)
74
74
To record June depreciation ($4,440/60 months = $74).
30

Wages payable (+L)
210
210
To record unpaid wages at June 30.
30

300
300
To record estimated June utilities expense.
30

Service fees earned (+R, +SE)
380
380
To record fees earned but not billed in June.

continued next page
3-37
P3-42. continued
b.
+ Cash (A) 1,180
Adj. bal.
1,180
+ Accounts Receivable (A) Unadj. bal
450
Jun. 30
(6) 380
Adj. bal.
830

Unadj. bal
760
Adj. bal.
760
Jun.30
210 (4)
Adj. bal.
210
Unadj. bal
+ Prepaid Rent (A) Unadj. bal

3,100 775 (1)
Adj. bal.
2,325
Jun.30
Adj. bal.
Unadj. bal
Adj. bal.
Unadj. bal
Adj. bal.
- Utilities Payable (L) +

Jun.30
300 (5)
Adj. bal.
300
Unadj. bal.
5,300
Jun.30
+ Rent Expense (E) (1) 775

775
+ Supplies (A) 2,520 1,700 (2)
820

Unadj. bal
2,000
Adj. bal.
2,000
Jun.30
+ Equipment (A) 4,440

4,440
- Accum. Depreciation Equip.(XA) +

74 (3) Jun.30
Adj. Bal.
74
+ Supplies Expense (E) (2) 1,700
Adj. bal.
1,700
Jun. 30

4,650 Unadj. bal
380 (6) Jun.30
Adj. bal.
5,030
+ Wages Expense (E) Unadj. bal
1,020
Jun.30
(4) 210
Adj. bal.
1,230
+ Utilities Expense (E) Jun.30
(5) 300
Adj. bal.
300
+ Depreciation Expense - EQPT (E) (3) 74
Adj. bal.
74
Jun.30
continued next page

3-38
P3-42. continued
c.
MURDOCK CARPET CLEANERS
Income Statement
For Year Ended June 30, 2014
Revenues
Service fees.
$5,030
Expenses
Rent expense
$ 775
Wages expense
1,230
Supplies expense
1,700
Utilities expense.
300
Depreciation expense
74
Total expenses
4,079
Net income ..........................................

$ 951
MURDOCK CARPET CLEANERS

Balance Sheet
June 30, 2014
Assets
Liabilities
$ 1,180 Accounts payable
830 Wages payable
Cash
Accounts receivable
Supplies
Prepaid rent
Equipment
Less: Accumulated
depreciation
Total Assets
$ 760
210
820 Utilities payable

2,325
Total Liabilities
$ 4,440
74
4,366
300
1,270
Owners Equity
Common stock
Retained earnings
2,000
6,251
$9,521
continued next page

3-39
P3-42. concluded
d.
1.
2.
3.
4.
5.
6.
1.
2.
3.
4.
5.
Bal.
Retained earnings (-SE) ........................................................

Rent expense (-E) ..............................................................
775
Retained earnings (-SE) .........................................................

Supplies expense (-E) ........................................................
1,700

Wages expense (-E) ..........................................................
1,230

Utilities expense (-E ) .........................................................
300

Depreciation expense (-E) .................................................
74
Service fees earned (-R) ........................................................

Retained earnings (+SE)....................................................
5,030

5,300
Bal.
775
1,700
1,230
300
74 5,030
6.
6,251
Bal.
+ Wages Expense(E) 1,230 1,230
0

74 74
0
3.
5.
775
1,700
1,230
300
74
5,030
Bal.
+ Rent Expense (E) 775 775

0
1.
Bal.
+ Supplies Expense (E) 1,700 1,700

0
2.
Bal.
6.
+ Utilities Expense (E) 300 300

4.
0
5,030 5,030
Bal.
0

3-40
P 3-43. (30 minutes)

a.
Balance Sheet
Transaction
Cash
Asset
Noncash
Assets
1. Accrue salary
expense.
2. Accrue
interest
expense.
3. Accrue fees
receivable.
+900
=
=
Liabilities
Income Statement
+
Contrib.
Capital
-400
+720
-720
Retained
Earnings
+200
-200
Interest
Payable
Retained
Earnings
b.
Date
Dec 31
31
31
31
+238
+900
Printing
Revenue
-160
Retained
Earnings
+2,175
2,175
Description
Salaries expense (+E, -SE)
To accrue salaries at December 31 ($1,800
+720
-720
-200
+900
-400
-300
-160
+38
-2,175
+200
+400
Maintenanc
e Expense
+300
Ad.
Expense
+160
Rent
Expense
+38
+38
Retained
Earnings
Interest
Revenue
-2,175
0
Net
Income
Retained
Earnings
= 1,080 +
Interest
Expense
+900
Rent
Payable
Accumulated
Depreciation
Retained
Earnings
+160
Expenses
Salaries
Expense
-300
Interest
Receivable
Retained
Earnings
-
+38
Retained
Earnings
Prepaid
Advertising
6. Accrue rent
expanse.
Revenues
-400
Prepaid
Maintenance
-300
Earned
Capital
Salaries
Payable
Fees
Receivable
4. Accrue
maintenanc
e expense.
5. Accrue ad.
Expense.
7. Accrue
interest
revenue.
8. Accrue
depreciation
expense.
Totals
Contra
Assets
+2,175
Depreciation
Expense
-3,017
938
Debit
720
3,955
= -3,017
Credit
720
2/5 = $720).
Interest expense (+E, -SE)

Interest payable (+L)
To accrue interest expense at December 31.
200

Printing revenue (+R, +SE)
To record revenue earned but not yet billed.
900
Maintenance expense (+E ,-SE)

Prepaid maintenance (-A)
To record December maintenance expense.
400
200
900
400
continued next page

3-41
P 3-43. concluded
b. continued
Date
Description
Dec. 31
31
31
31
Debit

To record December advertising expense
($900 1/3 = $300).
300

Rent payable (+L)
To accrue one-half month's rent expense
[(400 $0.80)/2 = $160].
160
Interest receivable (+A)

To accrue interest earned in December.
38
Credit
300
160
38

Accum. depreciationEquipment (+XA)
To record annual depreciation on equipment.
2,175
2,175
P3-44. (40 minutes)

TRUEMAN CONSULTING INC.
Income Statement
For the Year Ended December 31, 2013
a.
Revenue
Service fees earned
Expenses
Rent expense
Salaries expense
Supplies expense
Insurance expense
Depreciation expenseEquipment
Interest expense
Total Expenses
Net Income
$58,400
$12,000
33,400
4,700
3,250
720
630
54,700
$ 3,700
continued next page

3-42
P3-44. concluded
a. continued
TRUEMAN CONSULTING INC.
Common
Retained
Stock
Earnings
Balance at December 31, 2012 .............. $1,000
Stock issuance .......................................
Total Stockholders
Equity
$3,305
$4,305
Net income ............................................. _____
3,700
3,700
Balance at December 31, 2013 .............. $1,000
$7,005
$8,005
Dividends ................................................
TRUEMAN CONSULTING
Balance Sheet
December 31, 2013
Assets
Liabilities
Cash
Accounts receivable
Supplies
Prepaid insurance
Equipment
Less:
Accumulated
depreciation
Total Assets
$ 2,700
3,270
3,060
1,500
$ 6,400
1,080
Accounts payable
Long-term notes payable
$ 845
7,000
Total Liabilities
7,845
Owners Equity
5,320
$15,850
Common stock
1,000
Retained earnings
Total Liabilities and Owners Equity
7,005
$15,850
b.
Dec. 31 Service fees earned (-R)
Rent expense (-E)
Salaries expense(-E)
Depreciation expenseEquip (-E)
Interest expense (-E)
Debit
58,400
Credit
58,400
54,700
12,000
33,400
4,700
3,250
720
630

3-43
P3-45. (30 minutes)

a.
Date 2013
Dec. 31
31
Description
Miscellaneous income (-R)
Debit
97,200
4,200

Rent expense (-E)
74,800
Credit
101,400
42,800
13,400
1,800
8,000
8,800
b. After the closing entries are posted, Retained Earnings has a $45,700 credit balance
($19,100 + $26,600 net income).
c.
Wilson Company
Post-Closing Trial Balance
December 31, 2013
Debit
Cash
Accounts Receivable
Prepaid Insurance
Equipment
Accumulated Depreciation
Accounts Payable
Income Tax Payable
Common Stock
Retained Earnings
Credit
$8,500
8,000
3,600
72,000
______
$92,100
$12,000
600
8,800
25,000
45,700
$92,100

3-44
P3-46. (30 minutes)

a.
Balance Sheet
Transaction
Cash
Asset
1. Recognize
Advertising
expense.
Noncash
Assets
-400
Prepaid
Advertising
2. Accrue wage
expense.
-1,140
Prepaid
Insurance
4. Recognize
service fees
earned.
3. Recognize
insurance
expense.
Liabilities
Income Statement
Contrib.
+
Capital
+1,300
Wages
Payable*
Totals
+1,000
Rent
Receivable
-540
-1,140
Retained
Earnings
=
=
Revenues -
-1,300
Retained
Earnings
-2,400
Unearned
= Service Fees
5. Recognize
rent revenue.
Earned
Capital
-400
Retained
Earnings
-1,100
+2,400 Retained
Earnings
+2,400
Service
Fees
Earned
+1,000
Retained
Earnings
560
+1,000
Rental
Income
3,400
Expenses
+400
Advertising
Expense
+1,300
Wages
Expense
+1,140
Insurance
Expense
Net
Income
-400
-1,300
=
-1,140
=
+2,400
+1,000
2,840
*Assumes wages earned had not been accrued or recognized yet as an expense.
Date 2013
Dec. 31
Description
To record advertising expense ($1,200
31
Debit
400
Credit
400
$800 = $400).

Wages payable (+L)
1,300
1,300
To record accrued wages.
31

To record insurance expense ($3,420
31
1,140
1,140
$2,280 = $1,140).
Unearned service fees (-L)

2,400
2,400
To recognize unearned fees as earned

($5,400 $3,000 = $2,400).
31
Rent receivable (+A)

Rental income (R, +SE)
1,000
1,000
To record rent earned but not yet recorded.

continued next page

3-45
560
P3-46. concluded
b.
Balance Sheet
Transaction
Cash
Asset
1. Pay
-2,400
wages of
Cash
$2,400.
2. Receipt of +1,000
$1,000 rent
Cash
revenue.
Date 2014
Jan.
Noncash
Assets
-1,000
Rent
Receivable
Income Statement
Contrib.
= Liabil-ities +
+
Capital
Earned
Capital
-1,300
-1,100
Wages
Payable
Retained
Earnings
Revenues -
Expenses
+1,100
Wages
Expense
Description
Credit
Wages payable (-L)
Cash (-A)
=
=
Net
Income
-1,100
Debit
1,300
1,100
2,400
To record payment of wages.
Cash (+A)
Rent receivable (-A)
1,000
1,000
To record collection of rent.
P3-47. (90 minutes)

For part d, the adjusting entries are indicated by the numbers 1-5. The unadjusted trial
balance required in part c is calculated before the adjusting entries are made.
a.
6/1
6/2
6/30
6/10
6/28
+ Cash (A) 24,000

4,400
6,400
875
7,800
930
3,600
1,240
520
3,600
1,500
21,535
+ Accounts Receivable (A) 5,800
7,800
5,200
3,200
6/1
6/2
6/2
6/12
6/15
6/18
6/26
6/30
5.
6/30

9,480
6/1
- Salaries Payable (L) +

725
2.
- Unearned Service Fees (L) +

3,200
6,400
3,200
24,000
6/2
6/1
continued next page

3-46
P3-47. continued
a. continued
6/2
+ Prepaid Advertising (A) 930

310
620
6/1
+ Office Supplies (A) 2,840

1,310
1,530
6/1
4.
1.
+ Office Equipment (A) 11,040
- Acc. Depreciation Off. Equip (XA) +

115
3.
4.
6/12
6/26
2.
6/18
+ Advertising Expense (E) 310

+ Salaries Expenses (E) 3,600
3,600
725
7,925
6/30
1.
6/15
- Retained Earnings(SE) +
1,500
+ Supplies Expense (E) 1,310
+ Travel Expense (E) 1,240
3.
+ Depreciation Expense(E) 115
6/2
+ Rent Expense (E) 875

5,800
5,200
3,200
14,200
6/10
6/28
5.
+ Postage Expense (E) 520
continued next page

3-47
P3-47. continued
b.
Balance Sheet
Cash
Asset
Transaction
6/1. Investment for
common stock.
6/1. Purchase of
assets for cash &
on account.
Noncash
Assets
+24,000
Liabilities
Earned
Capital
Revenues -
+24,000
Cash
Income Statement
Contrib.
Capital
Common Stock
-4,400
+ 11,040
+9,480
Cash
Office
Equipment
Accounts Payable
=
Expenses
Net
Income
+2,840
Supplies
6/2. Pay rent $875.
-875
6/2.Purchase $930
of advertising in
advance.
6/2Signed research
contract.
-930
+930
Cash
Prepaid
Advertising
+6,400
6/12. Paid salaries.
6/18. Paid postage.
+5,800
Accounts
Receivable
-3,600
-1,240
Cash
-520
Cash
6/26. Paid salaries.
-3,600
Cash
6/28. Bill customers

for services.
6/30. Collect service
fees.
6/30. Cash dividend
paid.
+6,400
Cash
6/15. Paid travel
expenses.
Retained
Earnings
= Unearned Service
Fees
Cash
6/10. Bill customers

for services.
-875
Cash
+5,200
Accounts
Receivable
+7,800
-7,800
Cash
Acts. Rec.
+5,800
+5,800
Retained
Earnings
Service Fees
Earned
Retained
Earnings
Retained
Earnings
Retained
Earnings
Retained
Earnings
+5,200
+5,200
Retained
Earnings
Service
Fees Earned
-3,600
-520
-3,600
-1,500
-1,500
Cash
Retained
Earnings
Rent
Expense
-1,240
+875
+3,600
Salaries
Expense
+1,240
Travel
Expense
Postage
Expense
+520
+3,600
Salaries
Expense
continued next page

3-48
-875
+5,800
-3,600
-1,240
-520
-3,600
+5,200
P3-47. continued
b. continued
June 1 Cash (+A)
Common stock (+SE)
Debit
24,000
Credit
24,000
Owner invested cash for common stock.
1 Office equipment (+A)

Office supplies (+A)
Cash (-A)
11,040
2,840
4,400
9,480
Purchased equipment and supplies;

$4,400 cash paid with the remainder due in 60 days.
2 Rent expense (+E, -SE)

Cash (-A)
875
875
Paid June rent.
2 Prepaid advertising (+A)

Cash (-A)
930
930
Paid three months' advertising in advance.
2 Cash (+A)
Unearned service fees (+L)
6,400
6,400
Received two months' fees in advance on six-month contract.

5,800
5,800

Cash (-A)
3,600
3,600
Paid two weeks' salaries to employees.
15 Travel expense (+E, -SE)

Cash (-A)
1,240
1,240
Paid business travel expenses.
18 Postage expense (+E, -SE)

Cash (-A)
520
520
Paid postage for questionnaire mailing.

Cash (-A)
3,600
3,600
Paid two weeks' salaries to employees.

continued next page
3-49
P3-47. continued
b. continued
June 28 Accounts receivable (+A)
Debit
5,200
Credit
5,200
30 Cash (+A)
7,800
7,800
Collections from customers on account.

Cash (-A)
1,500
1,500
Declared and paid dividends.
c.
Cash
Accounts Receivable
Office Supplies
Prepaid Advertising
Office Equipment
Accounts Payable
Unearned Service Fees
Common Stock
Retained Earnings*
Service Fees Earned
Salaries Expense
Rent Expense
Travel Expense
Postage Expense
MARKET-PROBE
June 30, 2014
Debit
$21,535
3,200
2,840
930
11,040
Credit
$9,480
6,400
24,000
1,500
11,000
7,200
875
1,240
520
______
$50,880
$50,880
* The negative (debit) balance in Retained Earnings reflects the dividend paid.
continued next page

3-50
P3-47. concluded
d.
Balance Sheet
Transaction
Cash
Asset
a. Recognize
supplies
expense.
b. Recognize
salaries
expense.
c. Accrue
depreciation
expense.
d. Recognize
advertising
expense.
e. Recognize
earned
service fees.
Noncash
+
Assets
-1,310
Office
Supplies
Contra
Assets
= Liabilities
=
+725
Salaries
Payable
+115
Accumulated
Depreciation
-310
Prepaid
Advertising
=
-
Date 2014
Description
June

Office supplies (-A)
30
Income Statement
Contrib.
+
+
Capital
-3,200
Unearned
Service Fees
Earned
Capital
-1,310
Retained
Earnings
-725
Retained
Earnings
-115
Retained
Earnings
-310
Retained
Earnings
+3,200
Retained
Earnings
Revenues
Expenses
+1,310
Supplies
Expense
+725
Salaries
Expense
+115
Depreciation
Expense
+310
Advertising
Expense
-
+3,200
Service
Fees
Earned
Debit
Net
Income
-1,310
-725
-115
-310
+3,200
Credit
1,310
1,310
To record supplies used during June

($2,840 $1,530 = $1,310).
30
Salaries expense (+E, -SE)

725
725
To record unpaid salaries at June 30.
30
Depreciation expenseOffice equipment (+E, -SE)

Accum. deprec. Off. equipment (+XA, -A)
115
115
To record June depreciation ($11,040/96 mo. = $115).
30

310
310
To record one month's advertising expense.
30
Unearned service fees (-L)

3,200
3,200
To record one month's fees earned, received in advance.

3-51
P3-48. (40 minutes)

DELIVERALL
December 31, 2013
a.
Debit
$ 2,300
5,120
1,680
6,270
42,240
Cash
Accounts Receivable
Prepaid Advertising
Supplies
Equipment
Notes Payable
Accounts Payable
Common Stock
Mailing Fees Earned
Wages Expense
Rent Expense
Utilities Expense
Credit
$7,500
2,700
9,530
86,000
38,800
6,300
3,020
$105,730
________
$105,730
b.
Balance Sheet
Transaction
1. Recognize
advertising
expense.
2. Recognize
depreciation
expense.
3. Recognize
utilities
expense.
4. Accrue wages
expense.
5. Recognize
supplies
expense.
6. Accrue
interest
expense.
7. Recognize
rent
expense*.
Cash
Asset
Noncash
+
Assets
-1,540
Prepaid
Advertising
-
Contra
Assets
Liabilities
+5,280
Accumulated
Depreciation
=
-
-4,750
Supplies
+325
Accts
Payable
= +1,200
Wages
Payable
=
=
-
+450
Interest
Payable
= +430
Accts
Payable
Income Statement
+
Contrib.
Capital
Earned
Capital
-1,540
Retained
Earnings
-5,280
Retained
Earnings
-325
Retained
Earnings
-1,200
Retained
Earnings
-4,750
Retained
Earnings
-450
Retained
Earnings
-430
Retained
Earnings
Revenues
Expenses
+1,540
Advertising
Expense
+5,280
Depreciation
Expense
+325
Utilities
Expense
+1,200
Wages
Expense
+4,750
Supplies
Expense
+450
Interest
Expense
+430
Rent
Expense
Net
Income
= -1,540
=
-5,280
-325
-1,200
-4,750
-450
-430
*(1/2% $86,000 = $430). The rent for the year ($6,300 = $525 x 12) has already been recognized
in the accounts. See the beginning balances given in the problem statement.
continued next page

3-52
P3-48. continued
b. continued
Date 2013
Dec. 31
Description
Debit
1,540
Credit
1,540
To record 11 months' advertising expense

($1,680 11/12 = $1,540).
31
Depreciation expense (+E, -SE)

Accumulated depreciation (+XA, -A)
5,280
5,280
To record depreciation for the year

($42,240/8 years = $5,280).
.
31

325
325
To record estimated December utilities expense.
31

Wages payable (+L)
1,200
1,200
To record unpaid wages at December 31.
31

Supplies (-A)
4,750
4,750
To record supplies expense for the year

($6,270 $1,520 = $4,750).
31
Interest expense (+E, -SE)

450
450
To record accrual of interest expense at Dec. 31.
31

430
430
To record additional rent owed under lease

(1/2% $86,000 = $430).
continued next page

3-53
P3-48. concluded
c.
Only the T-accounts needed to enter the adjustments are provided.
2,700
325
430
Bal.
3.
7.
- Accumulated DepreciationEquip (XA) +

5,280
2.
Bal.
+ Prepaid Advertising (A) 1,680 1,540
1.
Bal.
+ Supplies (A) 6,270 4,750
5.
1.
+Advertising Expense (E) 1,540
- Interest Payable (L) +

450
6.
Bal.
7.
+ Rent Expense (E) 6,300

430

1,200
4.
Bal.
4.
+ Wages Expense (E) 38,800

1,200
Bal.
3.
+ Utilities Expense (E) 3,020

325
5.
2.
+ Depreciation Expense (E) 5,280
6.
+ Interest Expense (E) 450

3-54
P3-49 (60 minutes)

a.
Balance Sheet
Transaction
Cash
Asset
1. Recognize
rent
expense.
2. Recognize
supplies
expense.
3. Accrue
depreciation
expense.
4. Accrue wages
payable.
Noncash
+
Assets
-795
Prepaid
Rent
-1,980
Supplies
Contra
Assets
Liabilities
Income Statement
+
Contrib.
Capital
=
=
-
+335
Accumulated
Depreciation
=
-
5. Recognize
utilities
expense.
6. Recognize
service
revenue.
+560
Wages
Payable
=
+390
Accounts
Payable
=
-500
Unearned
Service
Revenue
Earned
Capital
-795
Retained
Earnings
-1,980
Retained
Earnings
-335
Retained
Earnings
-560
Retained
Earnings
-390
Retained
Earnings
+500
Retained
Earnings

Mar.
31

Prepaid rent (-A)
Revenues
Expenses
+795
Rent
Expense
+1,980
Supplies
Expense
+335
Depreciation
Expense
+560
Wages
Expense
+390
Utilities
Expense
Net
Income
-795
-1,980
-335
-560
-390
+500
+500
Service
Revenue
Debit
Credit
795
795
To record March rent expense ($4,770/6 months = $795).
31

Supplies (-A)
1,980
1,980
To record March supplies expense ($3,700 $1,720 = $1,980).
31

Accumulated depreciationEquipment (+XA, -A)
335
335
To record March depreciation ($36,180/108 months = $335).
31

Wages payable (+L)
560
560
To record unpaid wages at March 31.
31

390
390
To record estimated March utilities expense.
31
Unearned service revenue (-L)

Service revenue (+R, +SE)
500
500
To record revenue received in advance that was earned in March.
continued next page

3-55
P3-49. continued
b. Not all the T-accounts given are needed to enter the adjustments required. Also, the
closing entries required in part d are referenced by 1c, 2c etc.
2,510
390
2,900
Bal.
5.
Bal.
- Acc Depreciation - Equipment (XA) +

335
3.
6c.
3.
5.
1c.
2c.
3c.
4c.
5c.
-Service Revenue(R) +
12,860 12,360
500
+Depreciation Expense (E) 335

335
Bal.
6.
3c.
+ Utilities Expense (E) 390

390
5c.

795
1,980
335
4,460
390
12,860
4,900
6c.
7c.
Bal.
Bal.

795
3,975
1.
+ Supplies (A) Bal.

3,700
1,980
2.
Bal.
1,720
- Unearned Service Revenue (L) +
6.
500
1,000
Bal.
500
Bal.
1.
+ Rent Expense (E) 795

795
1c.
2.

1,980
2c.
+Wages Expense (E) 3,900

560
4,460
4c.

560
4.
Bal.
4.
continued next page

3-56
P3-49. continued
c.
WHEEL PLACE COMPANY
Income Statement
For Month Ended March 31, 2014
Service
revenue....
$12,860
Expenses:
Utilities expense...
$390
Supplies expense..
1,980
Wages expense....
4,460
Depreciation expense.
335
Rent expense...
795
Net income
...
7,960
$4,900
WHEEL PLACE COMPANY

BALANCE SHEET
March 31, 2014
Assets
Liabilities
$ 1,900 Accounts payable
3,820 Wages payable
Cash
Accounts receivable
Supplies
Prepaid rent
Equipment
Less:Accumulated
depreciation
Total Assets
$ 2,900
560
1,720 Unearned service revenue

3,975
Total Liabilities
$ 36,180
335
35,845
500
3,960
Owners Equity
Common stock
Retained earnings
38,400
4,900
$47,260
continued next page

3-57
P3-49. concluded
d.
1c.
2c.
3c.
4c.
5c.
6c.
Retained earnings (-SE) ......................................................

Rent expense (-E) ...........................................................
795

Supplies expense (-E) .....................................................
1,980

Depreciation expense (-E) ..............................................
335

Wages expense (-E) .......................................................
4,460

Utilities expense (-E) .......................................................
390
795
1,980
335
4,460
Service revenue (-R) .......................................................... 12,860

Retained earnings (+SE) .................................................
390
12,860
The closing journal entries are shown in the T-accounts in part a.

3-58
P3-50. (30 minutes)

a.
TRAILS, INC.
Income Statement
Revenues
Subscription revenue
Advertising revenue
Total revenues
Expenses
Salaries expense
Printing and mailing expense
Rent expense
Supplies expense
Insurance expense
Income tax expense
Total expenses
Net income
$ 168,300
49,700
$218,000
100,230
85,600
8,800
6,100
1,860
5,500
1,600
209,690
$8,310
TRAILS, INC.
$25,000
$23,220
Total
Stockholders
Equity
$48,220
_____
$25,000
8,310
$31,530
8,310
$56,530
Common
Stock
Balance at December 31, 20012 ............
Stock issuance .....................................
Dividends .............................................
Net income ...........................................
Balance at December 31, 2013 ..............
Retained
Earnings
continued next page

3-59
P3-50. Concluded
a. continued
TRAILS, INC.
Balance Sheet
December 31, 2013
Assets
Cash
Accounts receivable
Supplies
Prepaid insurance
Office equipment
Less:
Accum. depreciation
$3,400
8,600
4,200
930
Liabilities
Accounts payable
Unearned subscription revenue
Salaries payable
Total liabilities
$ 2, 100
10,000
3,500
15,600
$66,000
Stockholders' equity
11,000
Total assets
55,000
$72,130
Common stock
Retained earnings
Total stockholders' equity
Total liabilities and
stockholders' equity
$25,000
31,530
56,530
$72,130
b.
Dec. 31 Subscription revenue (-R)
Advertising revenue (-R)
Debit
168,300
49,700
Credit
218,000
31

Printing and mailing expense (-E)
Rent expense (-E)
209,690
100,230
85,600
8,800
6,100
1,860
5,500
1,600

3-60
P3-51. (30 minutes)

a.
Date 2013
Dec. 31
Description
Debit
72,500
Credit
72,500
31

Wages expense (-E)
Rent expense (-E)
Advertising expense(-E)
Depreciation expenseTrucks(-E)
Depreciation expenseEquipment (-E)
58,800
29,800
10,200
2,900
5,100
6,000
4,000
800
b. The balance in Retained Earnings after closing entries are posted is $29,250 credit
($15,550 + $13,700).
c.
MAYFLOWER MOVING SERVICE
December 31, 2013
Debit
Cash
$ 3,800
Accounts Receivable
5,250
Supplies
2,300
Prepaid Advertising
3,000
Trucks
28,300
Accumulated DepreciationTrucks
Equipment
7,600
Accumulated DepreciationEquipment
Accounts Payable
Unearned Service Fees
Common Stock
Retained Earnings
______
$50,250
Credit
$10,000
2,100
1,200
2,700
5,000
29,250
$50,250

3-61
P3-52. (20 minutes)

a.
Cash
Asset
Transaction
1. Recognize
maintenance
expense.
2. Recognize supplies
expense.
Noncash
+
Assets
-1,800
Prepaid
Maintenance
-5,200
Supplies
3. Accrue earned
commissions.
Balance Sheet
Liabil=
+
ities
Income Statement
Contrib.
+
Capital
=
=
-4,500
Unearned
=
Commis
-sion Fees
4. Earned but unbilled

commission fees.
+2,800
Fees
Receivable
+2,800
Retained
Earnings
-913
Retained
Earnings
5. Rent expense.
=
Earned
Capital
-1,800
Retained
Earnings
-5,200
Retained
Earnings
+4,500
Retained
Earnings
+913
Rent
Payable

Dec. 31 Maintenance expense (+E, -SE)
Prepaid maintenance (-A)
Revenues
+4,500
Commission
Fees Earned
+2,800
Commission
Fees Earned
Expenses
+1,800
Maintenance
Expense
+5,200
Supplies
Expense
=
-5,200
=
+4,500
+2,800
+913
Rent
Expense
Debit
1,800
-913
=
Credit
1,800
To record four months' maintenance expense

[($2,700/6) 4 = $1,800].
31 Supplies expense (+E, -SE)

Supplies (-A)
To record supplies expense ($8,400
5,200
5,200
$3,200 = $5,200).
31 Unearned commission fees (-L)

Commission fees earned (+R, +SE)
4,500
4,500
To transfer fees earned from unearned fees

($8,500 $4,000 = $4,500).

Commission fees earned (+R, +SE)
2,800
2,800
To record fees earned but not yet billed.

Rent payable (+L)
913
913
To record additional 2008 rent

[1% ($84,000 + $4,500 + $2,800) = $913].
continued next page

3-62
Net
Income
-1,800
P3-52. concluded
b.
Balance Sheet
Cash
Asset
Transaction
1/10. Billing of
commission
fees earned.
Noncash
Assets
Liabilities
Income Statement
+
Contrib.
Capital
Earned
Capital
Revenues -
-2,800
+1,800
+1,800
Fees
Receivable
Retained
Earnings
Commission
Fees
Earned
+4,600
Expenses
Net
Income
+1,800
-
Accounts
Receivable
1/10. Payment of
additional rent
in cash.
2014
Jan. 10
-913
-913
= Rent Payable
Cash

Fees receivable (-A)
Commision fees earned (+R, +SE)
4,600
2,800
1,800
To record billings on Jan. 10, 2011.
10
Rent payable (-L)

Cash (-A)
913
913
To record payment of contingent rent from 2010.
P3-53. (60 minutes)

a.
Balance Sheet
Transaction
1. Cash sales.
2. Record
inventory
purchased
and used.
3. Recognize
recent
payments on
A/P.
4. Recognize
rent paid and
rent
expense.
5. Recognize
wage
expense and
wages paid.
6. Recognize
depreciation
expense.
Cash
+
Asset
+145,850
Cash
Noncash
Assets
= Liabil-ities +
=
+2,500
Inventories
-77,300
Cash
-24,000
Cash
Contra
Assets
+200
Prepaid
Rent
-12,500
Cash
= +76,200
Accounts
Payable
Income Statement
Contrib.
+
Capital
Earned
Capital
+145,850
Retained
Earnings
-73,700
Retained
Earnings
= -77,300
Accounts
Payable
=
=
+1,700
=
- Accumulated
Depreciation
+250
Wages
Payable
Revenues
+145,850
Sales
Revenue
Expenses
+73,700
Cost of
Sales
Net
Income
+145,850
-73,700
-23,800
Retained
Earnings
+23,800
Rent
Expense
-23,800
-12,750
Retained
Earnings
+12,750
Wages
Expense
-12,750
-1,700
Retained
Earnings
+1,700
Depreciation
Expense
-1,700
continued next page

3-63
P3-53. continued
a. continued
1. Cash (+A) ............................................................................................
145,850
Sales revenue (+R,+SE) .....................................................................
145,850
2. Inventories (+A) ...................................................................................
2,500
Cost of goods sold (+E, -SE) ..............................................................
73,700*
Accounts payable (+L) ........................................................................
76,200
Or, make two separate entries with the same net effect:
Inventory (+A) ......................................................................................

76,200
Accounts payable (+L) ........................................................................
76,200
Cost of goods sold (+E, -SE) ..............................................................
73,700*
Inventory (-A) .......................................................................................
73,700
*73,700 = 12,000 +76,200 14,500.
3. Accounts payable (-L) .........................................................................

77,300*
Cash (-A) .............................................................................................
77,300
*77,300 = 5,200 +76,200 4,100.
4. Prepaid rent (+A) .................................................................................

200*
Rent expense (+E, -SE) ......................................................................
23,800*
Cash (-A) ..............................................................................................
24,000
*23,800 = 3,800 + (24,000 12)(10) and 200 = 24,000 3,800 (24,000 12)(10). The rent
expense for the first two months of the year is $3,800. But the rate for March 1, 2014 through
February 29, 2015 is $2,000 per month. So, for the last ten months of 2014, the rent expense
is $20,000, making the total rent expense $23,800 for 2014.
5.
Wages expense (+E,-SE) ....................................................................

12,750*
Cash (-A) ..............................................................................................
12,500
Wages payable (+L) ............................................................................ 250
* 12,750 = 12,500 + (350 100).
6.
Depreciation expense (+E,-SE) ..........................................................

1,700
Acc. depreciation Equipment (+XA, -A) ...........................................1,700
continued next page

3-64
P3-53. continued
b, d.
The closing entries required in part d are also included here and indicated by the
letter d before the relevent entry.
+ Cash (A) -
Bal.
1.
Bal.
8,500
145,850
77,300
24,000
12,500
3.
4.
5.
Bal.
2.
Bal.
40,550
Bal.
Bal.
Bal.

7,500
4.
Bal.
- Accumulated Depreciation Equip.(XA) +

Bal.
3,000
6.
1,700
Bal.
4,700
3.
d.
-Accounts Payable (L)+

5,200
77,300
76,200
4,100
-Sales Revenue (R)+
145,850
145,850
0
4.
Bal.
5.
Bal.
+Rent Expense (E)23,800

23,800
0
+Wages Expense (E)12,750
12,750
0
-Owners Equity (SE)+

23,500
33,900
57,400
Bal.
Bal.

200
4,000

100 Bal.
250 5.
350 Bal.
Bal.
2.
1.
+ Inventories (A) 12,000

2,500
14,500
2.
Bal.
6.
d.
Bal.
Bal.
d.
Bal.
+Cost of Goods Sold (E)73,700

73,700
d.
0
+Depreciation Expense(E)1,700
1,700
d.
0
d.
continued next page

3-65
P3-53. concluded
c, d. Part c is easier to complete if the closing entries required in part d are journalized
and entered in the T-accounts. The appropriate T-account entries for part d have
been made earlier and indicated by the letter d.
Sales revenue (-R) ...................................................................................
145,850
Cost of goods sold (-E) .............................................................................
Rent expense (-E) ....................................................................................
Wages expense (-E) .................................................................................
Depreciation expense (-E) .........................................................................
Owners equity..........................................................................................
73,700
23,800
12,750
1,700
33,900
To close temporary revenue and expense accounts.
FISCHER CARD SHOP

Income Statement
For the Year ended December 31, 2014
Sales revenue
Cost of goods sold
Gross profit
Other expenses:
Rent expense
Wages expense
Total other expenses
Net income
$145,850
73,700
72,150
$23,800
12,750
1,700
38,250
$33,900
FISCHER CARD SHOP

Balance Sheets
As of December 31,
Assets:
Cash
Inventories
Prepaid rent
Total current assets
Equipment
Accumulated depreciation
Equipment, net
Total assets
Liabilities and owners equity:
Accounts payable
Wages payable
Total liabilities
Owners equity
Total liabilities and owners equity
2013
2014
$ 8,500
12,000
3,800
24,300
7,500
(3,000)
4,500
$ 28,800
$ 40,550
14,500
4,000
59,050
7,500
(4,700)
2,800
$ 61,850
$ 5,200
100
5,300
23,500
$ 28,800
$ 4,100
350
4,450
57,400
$ 61,850

3-66
P3-54. (120 minutes)

a, b. The T-accounts follow the journal entries and the FSET.
Balance Sheet
Cash
Asset
Transaction
12/1. Investment for
common stock.
12/2. Rent paid in
cash.
12/2. Purchase
supplies on
account.
12/3. Office equipment
bought for 4,700
cash and rest on
account.
12/8. Paid for
supplies.
Noncash
Assets
= Liabilities
+20,000
Cash
-1,200
Cash
Contrib.
Capital
Earned
Capital
Revenues
+20,000
Common
Stock
-4,700
Cash
-1,200
Retained
Earnings
+1,080
= Accounts
Payable
+9,500
+4,800
Office
Accounts
=
Equipment
Payable
-1,080
Cash
-1,080
= Accounts
Payable
-900
Cash
12/20. Received cash

for consulting
services.
12/28. Paid wages in
cash.
+3,000
Cash
-900
Cash
12/30. Bill clients for

consulting.
+7,200
Fees
=
Receivable
-1,800
Cash
Expenses
+1,080
Supplies
12/14. Paid wages in

cash.
I2/30. Paid cash

dividends.
Income Statement
-900
Retained
Earnings
+3,000
Retained
Earnings
-900
Retained
Earnings
+7,200
Retained
Earnings
-1,800
Retained
Earnings
+1,200
Rent
Expense
-1,200
=
=
=
+900
Wages
Expense
-900
=
+3,000
+7,200
Consulting
Revenue
Net
Income
+3,000
Consulting
Revenue
=
+900
Wages
Expense
-900
=
+7,200
b.
Dec. 1 Cash (+A)
Common stock (+SE)
20,000
20,000
Invested $20,000 cash in the business.

Cash (-A)
1,200
1,200
Paid rent for December.
2 Supplies (+A)
1,080
1,080
Purchased various supplies on account.
continued next page

3-67
P3-54. continued
b. continued
Dec.
3 Office equipment (+A)

Cash (-A)
9,500
4,700
4,800
Purchased $9,500 of office equipment, $4,700 cash

down payment and balance due in 30 days.

Cash (-A)
1,080
1,080
Payment on account.

Cash (-A)
900
900
Paid assistant's wages.
20 Cash (+A)
Consulting revenue (+R, +SE)
3,000
3,000
Cash received for services.

Cash (-A)
900
900
Paid assistant's wages.

7,200

Cash (-A)
1,800
7,200
1,800
Issued and paid $1,800 in dividends.
continued next page

3-68
P3-54. continued
b. continued
The adjusting entries requested in part d are included and are denoted by the letter d
followed by a number 1 through 5. The closing entries requested in part g are indicated
by the letter g.
+
12/1
12/20
Bal.
Cash (A)
20,000
1,200
3,000
4,700
1,080
900
900
1,800
12,420
-Wages Payable(L) +
2d.
-Accumulated Depreciation+
Office Equipment (XA)
120
12/8

1,080 1,080
4,800
4,800
- Retained Earnings (SE)+

12/31
1,800 12,450
g.
3,760
6,890
g.
3d.
Bal.
-Consulting Revenue(R)+
3,000
7,200
12,450 2,250
Bal.
+Depreciation Expense(E)120 120
0
12/2
12/3
12/8
12/14
12/28
12/31
12/2
Bal.
+Supplies(A)1,080 370
710
12/3
+Office Equipment (A) 9,500
d1
270
-Common Stock(SE)+
3d.
12/2
12/3
Bal.
g.
Bal.
12/20
12/30
4d.
0
g.
20,000
12/2
Bal.
+Rent Expense (E) 1,200 1,200

0
12/14
12/28
2d.
Bal.
+ Wages Expense (E) 900 2,070

900
270
0
12/30
4d.
Bal.
+Fees Receivable (A)7,200

2,250
9,450
1d.
Bal.
+ Supplies Expense (E) 370 370

0
12/1
g.
g.
g.
continued next page

3-69
P3-54. continued
c.
RHOADES TAX SERVICES
December 31, 2013
Debit
$12,420
7,200
1,080
9,500
Cash
Fees Receivable
Supplies
Office Equipment
Accounts Payable
Common Stock
Retained Earnings (Dividend)
Consulting Revenue
Wages Expense
Rent Expense
Credit
$4,800
20,000
1,800
10,200
1,800
1,200
$35,000
______
$35,000
d.
Transaction
1. Record
supplies
expense.
2. Accrue wages
expense.
3. Record
depreciation
expense.
4. Recognize
accrued
consulting
fees.
Cash
Asset
Noncash
+
Assets
-370
Supplies
Balance Sheet
Contra
Liabi=
Assets
lities
=
=
-
+120
Accumulated
Depreciation
+2,250
Fees
Receivable
+270
Wages
Payable
Income Statement
+
Contrib.
Capital
Earned
Capital
-370
Retained
Earnings
-270
Retained
Earnings
-120
Retained
Earnings
+2,250
Retained
Earnings
Revenues
+2,250
Consulting
Revenue
Expenses
Net
Income
=
-370
=
+370
Supplies
Expense
+270
=
Wages
Expense
+120
=
Depreciation
Expense
=
continued next page

3-70
-270
-120
+2,250
P3-54. continued
d. continued
Date 2013
Description
Dec. 31 Supplies expense (+E, -SE)
Supplies (-A)
Debit
370
370
To record December supplies expense ($1,080
31
Credit
$710).

Wages payable (+L)
270
270
To reflect unpaid wages at December 31.
31
Depreciation expense (+E, -SE)

120
120
To record December depreciation.
31

To record unbilled service revenue (30
2,250
2,250
$75).
e.
Adjusted Trial Balance
December 31, 2013
Debit
Cash
$12,420
Fees Receivable
9,450
Supplies
710
Office Equipment
9,500
Accounts Payable
Wages Payable
Common Stock
Retained Earnings
1,800
Consulting Revenue
Supplies Expense
370
Wages Expense
2,070
Rent Expense
1,200
Depreciation Expense
120
$37,640
Credit
$120
4,800
270
20,000
12,450
______
$37,640
continued next page

3-71
P3-54. continued
f.
Income Statement
For the Month of December 2013
Revenue
Consulting revenue
Expenses
Wages expense
Rent expense
Supplies expense
Total expenses
Net income
$12,450
$ 2,070
1,200
370
120
3,760
$ 8,690

For the Month of December 2013
Common
Stock
Balance at December 1, 2012 ................
Stock issuance .....................................
$0
20,000
Dividends .............................................
Net income ...........................................
_____
Balance at December 31, 2013 ..............
$20,000
Retained
Earnings
$0
(1,800)
8,690
$6,890
Total
Stockholders
Equity
$0
20,000
(1,800)
8,690
$26,890

Balance Sheet
December 31, 2013
Assets
Cash
Fees receivable
Supplies
Office equipment
$ 9,500
Less:
Accum. depreciation
120
Total assets
Liabilities and Equity

$12,420 Accounts payable
9,450 Wages payable
710 Total liabilities
22,580
Stockholders equity
Common stock
9,380
Retained earnings
Total liabilities and stockholders
$31,960
equity
$ 4,800
270
5,070
20,000
6,890
$31,960
continued next page

3-72
P3-54. concluded
g.
Date 2013
Description
Dec.31 Consulting revenue (-R)
Debit Credit
12,450
12,450

Wages expense (-E)
Rent expense (-E)
3,760
2,070
1,200
370
120
h.
Cash
Fees Receivable
Supplies
Office Equipment
Accounts Payable
Wages Payable
Retained Earnings
Common Stock

December 31,2013
Debit
$12,420
9,450
710
9,500
$32,080
Credit
$ 120
4,800
270
6,890
20,000
$32,080

3-73
CASES and PROJECTS

C3-55. (90 minutes)
a1. Entries in the FSET are first shown for the initial deposits and checks. These are
entries 1- 8. Entries a - f are the adjusting entries that would be made at the end of the
three months. The expenditures for rent and salaries are assumed to have been
initially debited to expense accounts.
Balance Sheet
Cash
Transaction
Asset +
1. Investment for +50,000
common
Cash
stock.
2. Collections
+81,000
from
Cash
customers.
3. Bank
+10,000
borrowing.
Cash
Noncash
Assets
= +10,000
Loans
Payable
=
-25,000
Cash
+25,000
Equipment -
6. Purchased
inventory.
-62,000
Cash
7. Paid salaries.
-6,000
Cash
-13,000
Cash
+62,000
Inventory
b. Adjust rent
expense.
+12,000
Prepaid
Rent
+81,000
Sales
Revenue
-24,000
Retained
Earnings
Expenses
+24,000
Rent
Expanse
=
=
= +3,000
Salaries
Payable
=
+1,250
Accumulated
Depreciation
=
-
+300
Interest
Payable
-6,000
Retained
Earnings
-13,000
Retained
Earnings
+9,000
Retained
Earnings
+12,000
Retained
Earnings
-3,000
Retained
Earnings
-41,000
Retained
Earnings
-1,250
Retained
Earnings
-300
Retained
Earnings
+9,000
Sales
Revenue
+6,000
Salaries
Expense
+13,000
Misc.
Expenses
+81,000
-24,000
-12,000
Rent
Expense
+3,000
Salaries
Expense
+41,000
Cost of
Goods Sold
+1,250
Deprec.
Expense
+300
Interest
Expense
-6,000
-13,000
+9,000
=
+12,000
=
-3,000
-41,000
-1,250
-300
continued next page

3-74
Net
Income
-41,000
Inventory
Revenues
+9,000
A/R
Earned
Capital
a. Recognize
credit sales.
Income Statement
Contrib.
+
+
Capital
+50,000
Investment
+81,000
Retained
Earnings
5. Purchased
equipment.
c. Accrue
salaries
expense.
d. Recognize
cost of
goods sold.
e. Accrue
depreciation
expense.
f. Accrue interest
expense*.
Liabilities
4. Rent expense. -24,000

Cash
8. Paid other
expenses.
Contra
Assets
C3-55. continued
a. continued
a2. Journal entries are shown only for the adjustments a-f.
a. Accounts receivable (+A)
Sales revenue (+R, +SE)
9,000
9,000
To recognize sales on account.
b. Prepaid rent (+A)

Rent expense (-E, +SE)
12,000
12,000
To recognize remaining prepaid rent and correct rent expense.
c. Salaries expense (+E, -SE)

3,000
3,000
To recognize unpaid salaries earned during September.
d. Cost of goods sold (+E, -SE)

Merchandise inventory (-A)
41,000
41,000
To recognize cost of sales; ($62,000 - $21,000).
e. Depreciation expense (+E, -SE)

1,250
1,250
To accrue depreciation on the fixtures and equipment

($25,000/60)(3).
f. Interest expense (+E, -SE)

300
300
To accrue interest on bank loan assumed taken out 7/1/2008.

($10,000)(0.12)(1/4).
continued next page

3-75
C3-55. continued
b.
T-accounts: The opening balances shown are the amounts in the accounts prior to
the entry of the adjustments described in items a through f. The cash balance
represents the deposits made, $141,000, less the checks drawn, $130,000.
+ Cash (A) 11,000
Bal.
Bal.
+ Merchandise Inventory (A) 62,000

41,000
b.
Bal.
- Accumulated Deprec.-Equip. (XA) +

1,250
a.
e.
+ Accounts Receivable (A) 9,000
- Sales Revenue (R) +

81,000
9,000
Bal.
+ Rent Expense (E) 24,000

12,000
Bal.
+ Other Expense (E) 13,000
+
Bal.
c.
+
f.
d.
Bal.
a.
b.
- Salaries Payable (L) +

3,000
c.
- Owners Equity (SE) +

50,000
Bal.
d.
+ Cost of Goods Sold (E) 41,000
e.
+ Depreciation Expense (E) 1,250
- Bank Loan Payable (L) +

10,000

6,000
3,000
Interest Expense (E)

300
Interest Payable (L) +

300
Bal.
f.
continued next page

3-76
C3-55. continued
c.
SEASIDE SURF SHOP
Income Statement
July 1, 2010 to September 30 ,2014
Sales revenue
Cost of goods sold
Gross margin
Expenses:
Rent expense
Salaries expense
Interest expense
Misc. expenses
Net income
$90,000
41,000
49,000
$12,000
9,000
1,250
300
13,000
35,550
$13,450
SEASIDE SURF SHOP

Balance Sheet
September 30, 2014
Assets
Current assets
Cash
Accounts receivable
Inventory
Prepaid rent
$11,000
9,000
21,000
12,000
53,000
Fixtures and equipment, net

Total assets
23,750
$76,750
Liabilities and owners equity

Current liabilities
Salaries payable
Bank loan payable
Interest payable
Total current liabilities
$3,000
10,000
300
13,300
Owners equity*
Total liabilities and owners equity
63,450
$76,750
*$50,000 + $13,450
continued next page

3-77
C3-55. concluded
d. Chapter 1 introduced the return on equity ratio as a simple performance measure
that can be used to evaluate how well this new business is doing. The return on
equity is calculated as the ratio of net income to average total equity. In this case,
the return on equity for the three-month period was 23.7% = $13,450 / [($50,000+
$63,450)/2]. This is a very good return for a three-month period and equates to 95%
annualized. However, the favorable performance evaluation should be tempered by
a few caveats:
(1) Because this business appears to be a sole proprietorship, any salary paid to
the owner is not deducted from net income. Instead, cash payments to the
owner are treated as dividends (or withdrawals). As a consequence, any
services provided by the owner to the business would not be reflected among the
expenses reported in the income statement, and net income would be
overstated.
(2) No expense is reported in the income statement for income taxes. This is
consistent with the business being a sole proprietorship, in which income taxes
are levied against the owner as an individual taxpayer. Again, this makes net
income appear to be larger than it otherwise might be.
(3) Retail businesses are notoriously seasonal. That is, sales (and profits) fluctuate
from season to season. A business such as this one would likely have its highest
sales in the second and third quarters. This seasonality must be considered
when we try to annualize quarterly results like these. Once the business has
operated for a year or two, the owner would likely have a better idea about how
seasonal fluctuations affect sales and returns and would be better able to
interpret quarterly performance measures.
(4) Finally, Seasides cash position is precarious. The firm has burned through most of
the $60 thousand cash raised to begin the business and is likely to have trouble
replacing its inventory as well as paying its bills. Perhaps they can convince lenders
to come to their rescue. If not, the firm will not last another three months.

3-78
C3-56. (15 minutes)

a. The following analysis shows how the relevant information affects total assets,
liabilities, and owners equity of the firm:
Owners
Assets
Equity
Per Original balance sheet
Percentage of debt and equity
1. Recognition of insurance expense
($4,500 1/2 = $2,250)
2. Depreciation correction
(5% $68,500 = $3,425)
3. (No adjustment required)
4. Unbilled services performed
5. Advance consulting fee earned
($11,300 1/2 = $5,650)
6. Recognition of supplies expense
($13,200 $4,800 = $8,400)
Revised totals
Percentage of debt and equity
$88,500
Liabilities
$45,900
51.9%
$42,600
48.1%
(2,250)
(2,250)
3,425
3,425
6,000
6,000
(5,650)
(8,400)
$87,275
______
$40,250
46.1%
5,650
(8,400)
$47,025
53.9%
Revised debt-to-equity ratio: $40,250/$47,025 = 0.86

Original debt-to-equity ratio: $45,900/$42,600 = 1.08
b. Apparently, the loan agreement has not been violated.

3-79
C3-57. (30 minutes)

a. Discussion of this case may consider the following ethical considerations facing
Javetz:
1. Balancing the long-run interests of the firm (securing the international contract)
against the short-run requirement to present accurately the financial data of the
company for the current year (recording $150,000 adjusting entry).
2. Compromising the confidentiality of the contract negotiations (by disclosing the
contract negotiations to additional persons) versus compromising her professional
responsibilities (by omitting a significant year-end adjusting entry).
3. Jeopardizing her position with the firm (by revealing information the president wants
kept secret) versus risking possible future legal action by parties relying on the
firm's financial statements (by not revealing a significant accrued expense and
accrued liability in the financial statements).
b. Discussion of this case should also note that outside auditors frequently access
confidential data and disclosing the contract negotiations to the auditor should not
represent a significant breach of confidentiality. Perhaps Javetz can achieve a
reasonable solution to her dilemma by suggesting that an adjusting entry be recorded
and described in very general terms (for example, labeling the liability Payable to
Consultants and indicating it is for marketing research and development). Such an
adjustment would permit the disclosure of the significant liability without revealing
important details to anyone else within or outside the company.

3-80
C3-58. (30 minutes)

a,b,c and d.
FSET:
Balance Sheet
Transaction
a1. Recognize prepaid
catalog costs.
Cash
Asset
-62,550
Cash
a2. Advertising credits

received.
+ 849
Advertising
Credits
Receivable
-62,138
Prepaid
Catalog
Costs
b. Recognize
advertising
expense.
c. Recognize expiration
of advertising
credits.
d1. Sales of gift

certificates.
Noncash
Assets
+62,550
Prepaid
Catalog
Costs
-336
Advertising
Credits
Receivable
+19,175
Cash
d2. Recognize sales

using gift
certificates.
= Liabilities
Income Statement
+
Contrib.
Capital
Earned
Capital
Revenues -
+849
Retained
Earnings
-62,138
Retained
Earnings
-336
Retained
Earnings
+849
Advertising
Credits
Revenue
=
+62,138
Catalog
Expenses
-62,138
=
+336
Expense:
- Expiration of =
Advertising
Credits
+18,230
Gift
Certificate
Revenues
+18,230
-
62,550
62,550
To record catalog printing costs.
a2. Advertising credits receivable (+A)

Advertising credits revenue (+R, +SE)
849
849
To recognize advertising credits earned.
b.
Catalog expense (+E, -SE)

Prepaid catalog costs (-A)
62,138
62,138
To regognize catalog expense ($3,894 + $62,550 - $4,306).

continued next page

-336
Journal Entries:
a1. Prepaid catalog costs (+A)
Cash (-A)
Net
Income
+18,230
Retained
Earnings
+849
+19,175
Unearned
Gift
=
Certificate
Revenues
- 18,230
Unearned
Gift
=
Certificate
Revenues
Expenses
3-81
C3-58. concluded
c.
Advertising credit expiration expense (+E, -SE)

Advertising credits receivable (-A)
336
336
To record the expiration of advertising credits ($21 + $849 - $534).
Advertising credits expire either because they were used to advertise or, if there was a
time limitation to their use, the time limit expired.
d1. Cash (+A)
Unearned gift certificate revenues (+L)
19,175
19,175
To recognize gift certificates sold but not yet redeemed.
d2. Unearned gift certificate revenues (-L)

Gift certificate revenues (+R, +SE)
18,230
18,230
To recognize revenues based on redeemed gift certificates

($6,108 +$19,175 - $7,053).

3-82

Adjusting Accounts For Financial Statements: Learning Objectives - Coverage by Question

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Adjusting Accounts For Financial Statements: Learning Objectives - Coverage by Question

Загружено:

Авторское право:

Доступные форматы

Chapter 3

Adjusting Accounts for Financial

LO1 Identify the major steps in the

LO4 Prepare financial statements

44, 47, 49,

Cambridge Business Publishers, 2014

The five major steps in the accounting cycle are:

Examples of source documents that underlie business transactions are invoices

Cambridge Business Publishers, 2014

Financial Accounting, 4th Edition

1. Allocating assets to expense to reflect expenses incurred during the period.

Insurance expense (+E, -SE)

Cambridge Business Publishers, 2014

Wages expense (+E, -SE)

Interest receivable (+A)

Q3-16. The temporary accountssometimes called nominal accountsare closed at

Cambridge Business Publishers, 2014

Financial Accounting, 4th Edition

Cambridge Business Publishers, 2014

June 30. Paid $350

continued next page

Cambridge Business Publishers, 2014

June 30. Paid $2,500

June 17. Collected

Financial Accounting, 4th Edition

Rent expense (+E, -SE)

Office equipment (+A)

11 Accounts receivable (+A)

19 Accounts payable (-L)

25 Retained earnings (-SE)

30 Utilities expense (+E, -SE)

30 Salaries expense (+E, -SE)

continued next page

Cambridge Business Publishers, 2014

Accounts Receivable (A) 4,700 3,250

Common Stock (SE)

Service Fees Earned (R)

Office Equipment (A)

Retained Earnings (SE)

Rent Expense (E)

Utilities Expense (E)

Salaries Expense (E)

Cambridge Business Publishers, 2014

Financial Accounting, 4th Edition

M3-22. (45 minutes)

April 21. Billed $3,500

April 23. Paid $3,000

April 28. Collected

April 29. Paid $1,000

April 30. Paid $1,750

April 30. Paid $995

continued next page

Cambridge Business Publishers, 2014

Prepaid van lease (+A)

Advertising expense (+E, -SE)

21 Accounts receivable (+A)

23 Accounts payable (-L)

29 Retained earnings (-SE)

30 Wages expense (+E, -SE)

30 Van fuel expense (+E, -SE)

Cambridge Business Publishers, 2014

Financial Accounting, 4th Edition

Accounts Payable (L)